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The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load

  • Ondrej Rydval

    ()

    (Max Planck Institute of Economics, Jena, and CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic)

We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-064.

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Date of creation: 2011
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Handle: RePEc:jrp:jrpwrp:2011-064
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