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Published on: August 25, 2023
Economic preferences predict higher-education choices
Thomas F Epper1,2, Ernst Fehr1,3, Kristoffer B Hvidberg1,4
1Center for Economic Behavior and Inequality, Copenhagen K 1353, Denmark.
Summary
Individual preferences significantly influence higher education choices. More patient individuals opt for longer programs, while risk-averse individuals choose options with less financial variability, impacting educational investments.
Area of Science:
- Behavioral Economics
- Educational Economics
- Sociology
Background:
- Standard human capital theory posits that individual differences in time and risk preferences drive educational investment disparities.
- Empirically testing this requires measuring preferences prior to educational decisions and tracking subsequent choices.
Purpose of the Study:
- To investigate the predictive power of individual time and risk preferences on higher education decisions.
- To examine how these preferences relate to specific program characteristics, such as duration and earnings profiles.
Main Methods:
- Utilized incentivized, experimentally elicited measures of time and risk preferences from a large, representative sample of young Danes (18-19 years old).
- Combined preference data with administrative records on higher education enrollment, program-specific earnings, academic performance, and family background.
Main Results:
- Individuals with higher patience selected longer educational programs and those with steeper early-career earnings.
- More risk-averse individuals tended to choose programs with lower earnings dispersion and reduced financial risk.
- These associations persisted even after controlling for cognitive ability, prior academic achievement, and socioeconomic factors.
Conclusions:
- Individual preferences are substantial predictors of real-world educational investment decisions.
- Findings have significant implications for understanding educational sorting mechanisms and policy interventions.
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