I propose a method for mapping psychological personality traits to economic preferences. I use factor analysis to extract information on individuals' cognitive ability and personality and embed it within a Random Preference Model to estimate distributions of risk and time preferences and of parameters related to choice inconsistency. I explain up to 60% of variation in average risk and time preferences and in individuals' capacity to make consistent choices using factors related to cognitive ability and three of the Big Five personality traits. Differences in preferred outcomes are related to personality whereas mistakes in decisions are related to cognitive skill. 

We measure both revealed and self-reported reliability of individuals’ answers on self-reports of latent characteristics. We propose a straightforward survey question which allows to distinguish individuals who give highly reliable answers from those who do not. Our novel indicator can be used to cost-effectively reduce attenuation bias in estimates of cognitive and non-cognitive determinants of key life outcomes. Without requiring panel data, the achieved correction is similar to the most effective reduced-form theory-based approaches in the existing literature. Finally, we clarify the role of effort and self-knowledge in generating measurement error and propose a simple model which rationalizes our findings. 

This paper synthesizes recent research in economics and psychology on the measurement and empirical importance of personality skills and preferences. They predict and cause important life outcomes such as wages, health, and longevity. Skills develop over the life cycle and can be enhanced by education, parenting, and environmental influences to different degrees at different ages. Economic analysis clarifies psychological studies by establishing that personality is measured by performance on tasks which depends on incentives and multiple skills. Identification of any single skill therefore requires isolation of confounding factors, accounting for measurement error using rich data and application of appropriate statistical techniques. Skills can be inferred not only by questionnaires and experiments but also from observed behavior. Economists advance the analysis of human differences by providing anchored measures of economic preferences and studying their links to personality and cognitive skills. Connecting the research from the two disciplines promotes understanding of the number and nature of skills and preferences required to characterize essential differences.

The question of whether and how much currency unions increase bilateral trade among their members has garnered much attention since Rose’s seminal article. The answer is as pertinent now as ever for both the Eurozone’s existing and future members as the financial crisis shook the very foundations of the European Monetary Union (EMU) and brought its shortcomings into the spotlight. This paper analyses the issue using the gravity equation with country pair and time fixed effects. For a sample of the four new members of the EMU – Slovakia, Slovenia, Malta and Cyprus – which has, to the author’s knowledge, not been studied thus far due to their recent joining, and controls drawn from the European Union, this paper finds a positive relationship between joining the EMU and trade with EMU partners but not with non‐EMU partners.

Preferences, like skills and other latent personal attributes, are key drivers of inequalities in life outcomes. We propose a novel framework for accounting for individuals' effort and cognitive noise which confound estimates of preferences based on observed behavior. We establish the ability of our framework to quantify the noise content of a given experimental design and to de-bias estimates of risk aversion in a large-scale experimental dataset. While the two risk preference elicitation designs we study were used interchangeably in the past, we estimate that failure to properly account for decision errors due to (rational) inattention results in estimates of risk aversion biased by 50% for the median individual. Our findings have implications regarding the general relationship between elicitation task complexity and the bias of preference estimates. Furthermore, accounting for endogenous effort allows us to empirically reconcile competing models of discrete choice. Finally, the estimated individual effort propensities generalize to other settings and predict, inter alia, an individual’s performance on a large scale OECD-sponsored achievement test used to make international comparisons. 

Abstract: The value people attach to longevity increases is an important input to policy decisions on health care, the environment, and safety regulations. This value is typically estimated based on compensating differentials for taking on very small risks of death. We instead estimate this value by letting people choose between completed life stories in which life-time income and longevity is randomized. We present a battery of tests to gauge whether these hypothetical choices measure underlying preferences. The benefit of our method is that it does not require people to correctly evaluate very small probabilities, yields estimates of the distribution of preferences for longevity in a representative population, and allows for a characterization of heterogeneity in preferences by respondent characteristics.

I empirically test a model of a labor market with matching frictions, heterogeneity, and endogenous choice of human capital investment which could partly explain the large difference in the functioning of European and American labor markets. Using international data on over 20 countries from the Luxembourg Income Study (LIS) database which has thus far been largely unexplored in this literature, we find broad support for the model's findings. Notably, agents seem to prefer investing in specific rather than general skills when market frictions are high. This investment is in turn reflected in a significantly increased expected job tenure. These results are robust across countries, education levels, and controls included and should encourage further research into this so far scarcely explored territory.