How Personality Traits Affect Economic Outcomes

This thesis is composed of three chapters in behavioral economics. The first chapter, titled “Personality Psychology and Economics: How Personality Traits Explain Economic Outcomes”, is a literature review of the predictive power of personality traits in explaining economic outcomes. A growing body of literature has tried to integrate constructs developed in the field of personality psychology in an economic network in order to better understand subjects’ actual decisions and behaviors. I define personality traits and the most widely accepted taxonomy of personality, the Five Factor Model. I analyze how the issue of the relative stability of personality traits across the lifespan has been addressed in literature and describe how changes in personality traits may be caused by exogenous life events or programmed public interventions, which aim at enhancing individuals personality qualities related to better economic outcomes. Gender differences in personality traits have been found in the literature that may help to explain heterogeneity in economic behavior. I report evidence on the relationship between personality traits and several life outcomes, such as cognitive test scores, political orientation, occupation choice, and saving behavior. The second chapter is titled “How Personality Traits Affect Economic Decisions: a Laboratory Experiment”. We implement a laboratory experiment on a sample of university students to investigate how and to what extent personality traits relate to two major economic preferences, risk attitudes and time preferences. In this research setting economic preferences of the agents are elicited by means of economically incentivized decision tasks. We measure personality traits using the Ten Item Personality Inventory (TIPI), a short questionnaire structured according to the taxonomy of the Five Factor Model. We distinguish between two treatments to control for potential order effects, in one the risky choice task is administered prior to the Intertemporal choice task, in the other the order of the experimental tasks is inverted. We observe significant order effects on time preferences. In particular, if the risky choice task is administered prior to the Intertemporal choice task, individuals tend to show more impatience than in the other treatment. Moreover, the order effects are mediated by personality traits and gender. In addition, we investigate whether personality traits may shed light on the rationale of the relationship between risk aversion and time preferences, for which the evidence is mixed. We fail to find a significant relationship between risk aversion and time preferences. Personality traits do not mediate the relationship. The third chapter is titled “Personality Traits, Field of Study Choice, and Academic Performance”. We use original survey data from a cohort of first year university students enrolled in a course of study at the University of Messina (bachelor’s degree or single cycle degree) and investigate whether personality traits may help to explain the field of study choice and causally affect academic performance over the first year of the study program. We use two measures of academic performance: the grade point average and the total academic credits gained in the first academic year. We find evidence that personality traits predict the choice of the field of study, whereas the results for the causal effects of personality traits on the performance outcome are less consistent and depending on which measure of academic performance is used.