People With Higher IQs Make Wiser Economic Choices, Study Finds

Science Daily, April 27, 2009

People with higher measures of cognitive ability are more likely to make good choices in several different types of economic decisions, according to a new study with researchers from the University of Minnesota’s Twin Cities and Morris campuses.

The study, set to be published online in the Proceedings of the National Academy of Sciences this week, was conducted with 1,000 trainee truck drivers at Schneider National, Inc., an American motor carrier employing 20,000. The researchers measured the trainees’ cognitive skills and asked them to make choices in several economic experiments, and then followed them on the job.

People with better cognitive skills, in particular higher IQ, were more willing to take calculated risks and to save their money and made more consistent choices. They were also more likely to be cooperative in a strategic situation, and exhibited higher “social awareness” in that they more accurately forecasted others’ behavior.

The researchers also tracked how trainees persevered on their new job. The company paid for the training of those who stayed a year, but those who left early owed thousands in training costs. The study found that those with the highest level of cognitive ability stayed at twice the rate of those with the lowest.

The finding that individual characteristics that improve economic success–patience, risk taking and effective social behavior–all cluster together and are linked through cognitive skill, which could have implications for policy making and education.

“These results could shed light on the causes of differential economic success among individuals and among nations,” said University of Minnesota-Twin Cities economist Aldo Rustichini, a co-author whose theoretical work on cognitive skills is used in the paper.

“It also suggests that the benefit from early childhood education programs not only affects cognitive skills, but extends to more effective economic decision-making,” said study co-author Stephen Burks, the University of Minnesota-Morris economist who organized the project that gathered the data.

[Editor’s Note: “Cognitive skills affect economic preferences, strategic behavior, and job attachment,” by Stephen V. Burks, Jeffrey P. Carpenterb, Lorenz Goettec and Aldo Rustichinid, can be read on-line or downloaded as a PDF file here. There is a charge.]


Author Affiliations

[a] Division of Social Sciences, University of Minnesota, 600 East 4th Street, Morris, MN 56267-2134;

[b] Department of Economics, Middlebury College, Middlebury, VT 05753;

[c] Department of Economics, University of Geneva, 40 Boulevard du Pont d’Arve, 1211 Geneva, Switzerland;

[d] Department of Economics, University of Minnesota, 1925 Fourth Street South, 4-101 Hanson Hall, Minneapolis, MN 55455-0462; and

[e] Faculty of Economics, University of Cambridge, Cambridge CB2 3EB, United Kingdom

Edited by Avinash K. Dixit, Princeton University, Princeton, NJ, and approved March 17, 2009 (received for review December 7, 2008)

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.

Footnotes

[1] To whom correspondence should be addressed. E-mail: [email protected]

Author contributions: S.V.B., J.P.C., L.G., and A.R. designed research; S.V.B. performed research; S.V.B., J.P.C., L.G., and A.R. analyzed data; and S.V.B., J.P.C., L.G., and A.R. wrote the paper.

The authors declare no conflict of interest.

This article is a PNAS Direct Submission.

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