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.cognitive ability ͉ discount rate ͉ Prisoner's Dilemma ͉ risk aversion ͉ turnover E conomic, financial, and many other decisions in life require choosing between options that vary along several distinct dimensions, such as the probability or the delivery times of the outcomes. Variation in these factors affects the choices of different individuals differently; for example, some people are more prudent in risk taking, whereas others are more patient in their choices of saving versus consumption. Individuals also vary in their cognitive skills (CS). Economists have only recently begun to analyze how the general CS of an individual might be related to that individual's economic preferences and whether and how the preferences of the same individual in different choice domains, such as risk taking or saving, might be related to each other (1-5). Psychologists have studied the relationship between various CS and job success, among other outcome variables, but without focusing on the link between CS and preferences (6). Similarly, little is known about how CS influence behavior in strategic interactions. However, an understanding of the effects CS may have on preferences (7) and strategic behavior, and the relations that may exist among preferences, is of considerable potential importance in constructing theories of human decision making and in selecting managerial and public policies.We examine whether and how CS are related to attitudes toward risk and intertemporal choices and how choices in these distinct domains are related to each other in a large sample (n ϭ 1,066) of trainee tractor-trailer drivers at a sizable U.S. trucking company (see SI Appendix and ref. 8). We also examine how CS ...

Evidence from both psychology and economics indicates that individuals give statements that appear to overestimate their ability compared to that of others. We test three theories that predict such relative overconfidence. The first theory argues that overconfidence can be generated by Bayesian updating from a common prior and truthful statements if individuals do not know their true type. The second theory suggests that self-image concerns asymmetrically affect the choice to receive new information about one's abilities, and this asymmetry can produce overconfidence. The third theory is that overconfidence is induced by the desire to send positive signals to others about one's own skill; this suggests either a bias in judgment, strategic lying, or both. We formulate this theory precisely. Using a large data set of relative ability judgments about two cognitive tests, we reject the restrictions imposed by the Bayesian model and also reject a key prediction of the self-image models that individuals with optimistic beliefs will be less likely to search for further information about their skill because this information might shatter their self-image. We provide evidence that personality traits strongly affect relative ability judgments in a pattern that is consistent with the third theory of social signaling. Our results together suggest that overconfidence in statements is more likely to be induced by social concerns than by either of the other two factors.

Using personnel data from nine large firms in three industries (call centers, trucking, and high-tech), we empirically assess the benefit to firms of hiring through employee referrals. Compared to nonreferred applicants, referred applicants are more likely to be hired and more likely to accept offers, even though referrals and nonreferrals have similar skill characteristics. Referred workers tend to have similar productivity compared to nonreferred workers on most measures, but referred workers have lower accident rates in trucking and produce more patents in high-tech. Referred workers are substantially less likely to quit and earn slightly higher wages than nonreferred workers. In call centers and trucking, the two industries for which we can calculate worker-level profits, referred workers yield substantially higher profits per worker than nonreferred workers. These profit differences are driven by lower turnover and lower recruiting costs for referrals.

This paper examines the effect of subjects playing both roles in a trust game. We compare two information treatments to our replication of the single-role trust game. The treatments alter the point at which participants are told they will play both roles. We find that playing both roles reduces both trust and reciprocity. We also explore relationships between demographic and personality characteristics and decisions in the game. We find that a social-psychological measure of Machiavellian behavior predicts distrust but not a lack of trustworthiness, and that non-white participants trust less in a predominantly white environment, but are no less trustworthy.

We replicate previous results showing that stakes do not affect offers in the Ultimatum Game and show that stakes also have no effect on allocations in the Dictator Game. Both results are robust to the inclusion of demographic factors.