Working Paper: NBER ID: w26785
Authors: Arpita Patnaik; Joanna Venator; Matthew Wiswall; Basit Zafar
Abstract: In this paper, we estimate a rich model of college major choice using a panel of experimentally-derived data. Our estimation strategy combines two types of data: data on self-reported beliefs about future earnings from potential human capital decisions and survey-based measures of risk and time preferences. We show how to use these data to identify a general life-cycle model, allowing for rich patterns of heterogeneous beliefs and preferences. Our data allow us to separate perceptions about the degree of risk or perceptions about the current versus future payoffs for a choice from the individual's preference for risk and patience. Comparing our estimates of the general model to estimates of models which ignore heterogeneity in risk and time preferences, we find that these restricted models are likely to overstate the importance of earnings to major choice. Additionally, we show that while men are less risk averse and patient than women, gender differences in expectations about own-earnings, risk aversion, and patience cannot explain gender gaps in major choice.
Keywords: College Major Choice; Risk Preferences; Discount Rates; Earnings Expectations
JEL Codes: I23; J16; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| heterogeneous risk preferences and discount rates (D15) | sensitivity of students' major choices to expected earnings (D29) |
| models assuming homogeneous risk preferences and discount rates (D15) | overestimate importance of earnings in major choice (D29) |
| gender differences in risk preferences (J16) | gender gap in major selection (J16) |
| risk aversion and patience (D81) | expectations about future earnings (D84) |
| experimental design (C90) | understanding of how students update beliefs about major choice and earnings characteristics (D83) |