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No Pain, No Gain - An Experiment on Skill Accumulation

Author

Listed:
  • Bhagya N. Gunawardena

    (School of Economics, Finance and Marketing, RMIT University, Australia)

  • Lana Friesen

    (School of Economics, The University of Queensland, Australia)

  • Kenan Kalayci

    (School of Economics, The University of Queensland, Australia)

Abstract

Skill accumulation requires a periodic and persistent investment of time and effort. In contrast to financial investments, investing in skills does not allow for saving or borrowing, the maximum periodical investment is capped, and the cost of investment often decreases with the person’s cumulative past investment. In this paper, we develop a model that captures the key characteristics of a skill accumulation task where it is optimal to invest relatively high and increasing input levels in earlier periods. Using an online experiment we find that most participants invest too little compared to the rational path, and that a majority of the participants’ investments are characterized by myopic optimization. Whereas individual experience over repeated lifecycles improves investments and earnings, social information about a selected peer’s investments, earnings, or confidence levels has only a limited effect. Our results demonstrate the difficulty of investing in skill acquisition even in the absence of risk and time factors.

Suggested Citation

  • Bhagya N. Gunawardena & Lana Friesen & Kenan Kalayci, 2025. "No Pain, No Gain - An Experiment on Skill Accumulation," Discussion Papers Series 670, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:670
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    File URL: https://economics.uq.edu.au/files/54601/670.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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