Cognitive skills affect economic preferences, strategic behavior, and job attachment

TLDR

Economic analysis has largely ignored how an individual's cognitive skills relate to preferences across domains such as risk taking and saving. The study reports three findings from a sample of 1,000 trainee truckers. Higher cognitive skills are strongly linked to greater patience, willingness to take calculated risks, better social awareness in strategic games, greater job perseverance, and overall patterns of correlated preferences that favor economic success.

Abstract

Economic analysis has so far said little about how an individual's cognitive skills (CS) are related to the individual's economic preferences in different choice domains, such as risk taking or saving, and how preferences in different domains are related to each other. Using a sample of 1,000 trainee truckers we report three findings. First, there is a strong and significant relationship between an individual's CS and preferences. Individuals with better CS are more patient, in both short- and long-run. Better CS are also associated with a greater willingness to take calculated risks. Second, CS predict social awareness and choices in a sequential Prisoner's Dilemma game. Subjects with better CS more accurately forecast others' behavior and differentiate their behavior as a second mover more strongly depending on the first-mover's choice. Third, CS, and in particular, the ability to plan, strongly predict perseverance on the job in a setting with a substantial financial penalty for early exit. Consistent with CS being a common factor in all of these preferences and behaviors, we find a strong pattern of correlation among them. These results, taken together with the theoretical explanation we offer for the relationships we find, suggest that higher CS systematically affect preferences and choices in ways that favor economic success.