| Story Views | |
| Now: | |
| Last Hour: | |
| Last 24 Hours: | |
| Total: | |
“Behavioral Man” Provides Another Justification for Investing in Pre-K for Disadvantaged Children
In a recent blog post, I argued that many of the “anomalies” that behavioral economists point out would vanish if adults have acquired more human capital and developed their non-cognitive skills as younger people. My strong claim is that the propensity to “be behavioral” is an emergent property of skill formation over the life cycle and thus one's propensity to be “behavioral” is an outcome caused by life cycle human capital accumulation. This theory endogenizes the propensity to “be behavioral” and links it back to neo-classical investment theory. Mr. Spock is the logical Vulcan because of the investments his parents and he made when he was young. Where his parents aware that by investing in him that they would reduce his propensity to make mistakes as an adult? Maybe.
In Jim Heckman's work on skill formation (see this and this), he focuses on developing non-cognitive traits such as “grit” and “tenacity”, self control and patience. If these traits can be built up, then many “behavioral puzzles” and policy concerns for “behavioral people” would be mitigated.
Tying these two paragraphs together, investing in pre-K for kids from disadvantaged backgrounds would increase their cognitive and non-cognitive skills when they become adults. Such individuals are likely to be more productive, happy citizens and to make fewer mistakes in the markets that Richard Thaler focuses on (i.e finance markets).
What is my evidence for this last claim? Watch Harvard Professor John Campbell's 2016 Ely Lecture and you will see the evidence. Midway through the Lecture, Prof. Campbell presents evidence that a fraction of the population holds a portfolio (the extensive margin) that exposes them to lower risk adjusted rates of return on their investments. He relates this to Piketty's work on inequality trends. If the Spocks invest efficiently while the Homer Simpsons make systematic mistakes in investing then wealth gaps will grow.
So, I would like to see the behavioral economics crew move beyond documenting “anomalies” and take up life-cycle skill formation and the resulting implications for a diverse population concerning gambles that different people take both with respect to asset holding but also life-style choices (smoking, drug use, living in risky coastal areas etc.).
Source: http://greeneconomics.blogspot.com/2016/01/behavioral-man-provides-another.html
