The instability of locus of control: New evidence from the distributional effects of major life events

Previous empirical evidence suggests that locus on control (LoC), a non-cognitive skill reflecting an individual's belief that life’s outcomes result from their own efforts, is relatively unresponsive to major life events in adulthood. This study re-examines this evidence by utilizing a longer panel dataset to boost statistical power and more flexible econometric models to allow for unobserved heterogeneity and non-linear effects. Fixed effects models reveal that 13 out of 20 available life event measures are statistically significantly impacting LoC, with largest penalties observed for negative life events such as worsening of finances, victimhood, separation, serious personal injury or illness, and the death of close family members. Individual fixed effects unconditional quantile regressions show that the effects of these 13 life events are largest in magnitude at the lower end of the internal LoC distribution, where individuals are more vulnerable, with penalty increases of between 25% and 182%. There are no significant gender or age heterogeneities. Although the impacts of life events are short-lived, they are economically meaningful. Our findings are in stark contrast with the received literature.