“Cognitive Skills Affect Economic Preferences, Strategic Behavior, and Job Attachment”, 2009-05-12 ():
Economic analysis has so far said little about how an individual’s cognitive skills (CS) [ie. IQ] 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.
We collected 3 measures of CS: a nonverbal IQ test (Raven’s matrices), a test of the ability to plan (referred to as the Hit 15 task), and a quantitative literacy (or numeracy) test…Using a sample of 1,000 trainee truckers we report 3 findings:
there is a strong and statistically-significant relationship between an individual’s CS and preferences. Individuals with better CS are more patient, in both short-run & long-run. Better CS are also associated with a greater willingness to take calculated risks.
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.
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.