International Choice Modelling Conference, International Choice Modelling Conference 2017

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Personality and Economic Choices
nick hanley, mikolaj czajkowski, christopher boyce

Last modified: 28 March 2017

Abstract


In a recent paper, Boyce et al (2016) make the following comment:

“It is clear that the use of cognitive psychology (an area of psychology concerned with how people process information in general), has helped improve the predictive power of economic models creating the hugely influential field of behavioural economics. However, although behavioural economics has helped us understand how people react on average, there is often substantial variation in individual reactions. The use of personality psychology (an area of psychology focusing on individual differences in reaction) has the potential to instigate a second wave of behavioural economics to predict individual specific reactions to economic circumstance. Thus, we advocate a major change in how research is conducted within the social sciences.”

In this paper, we undertake the first examination of the effects of personality on individual economic choices over public goods, using a stated preference approach. We examine the potential for personality scales to explain preference heterogeneity within an environmental choice context. Based on data sets from three separate choice modelling studies, we examine the effects of personality type on preferences for a change in the status quo, for changes in environmental quality, and over the costs of investing in environmental improvement. We show that incorporating personality research into economic models can provide valuable behavioral insights, since it allows a previously-unexplored class of influences on preference heterogeneity to be modelled, thus enriching explanations of why the demand for environmental goods varies across people.

Personality is typically defined as patterns of thought, feelings and behavior that persist from one situation to another (Wood and Boyce 2014). Personality research spans several decades (Winter and Barenbaum 1999) and in part originated out of a need to understand how individuals might be expected to react and respond in various situations (John, Robins, and Pervin 2008). This body of work gave rise to the influential Five Factor Model (McCrae and Costa 2008), whereby each individual can be characterized by differences across five key dimensions: Agreeableness, Conscientiousness, Extraversion, Openness, and Neuroticism. Personality has been shown to be strongly influenced by schooling decisions (Heckman, Stixrud, and Urzua 2006). Personality is sometimes referred to as non-cognitive skills, to reflect the idea that some individual skills do not have a direct basis in cognition (Borghans et al. 2008), such as social and emotional skills (OECD 2015). This body of research has led to a number of influential economists strongly arguing that personality research needs to be integrated both theoretically and empirically into economic research (Borghans et al. 2008; Rustichini et al. 2012).

 The importance of personality for life outcomes is now well established (Borghans et al. 2008), since it has been shown to help explain a number of important behaviours and outcomes, including wage bargaining (Nyhus and Pons 2005; Mueller and Plug 2006), unemployment duration (Uysal and Pohlmeier 2011; Fletcher 2013), and well-being reactions to events such as unemployment (Boyce, Wood, and Brown 2010), retirement (Kesavayuth, Rosenman, and Zikos 2015), and disability (Boyce and Wood 2011b). Boyce et al (2016) find that one personality type – conscientiousness – is important in determining the extent to which people are loss averse, though an examination of the effects of income gains and losses on subjective well-being.

However, despite the increased use of concepts from psychology to understand economic behavior (Thaler and Sunstein 2009) most economists remain unfamiliar with personality research,  and with how personality might be measured. This, and a lack of personality testing in large surveys, has acted as a barrier to incorporating personality measures into a wider economic framework. Personality, however, can be measured quite quickly by administering individuals with a self-report questionnaire that is designed to elicit what kind of person they are and how they view the world. In our study we make use of the Ten Item Personality Inventory (TIPI) designed, developed and validated by Gosling, Rentfrow, & Swann (2003). The TIPI, which is much shorter than many Five Factor scales, has been developed specifically to enable personality to be measured under severe time-constraints.. We asked participants carrying out 3 separate discrete choice experiments conducted in Estonia and Latvia to also compete the TIPI. We then used this measure of personality to determine whether personality helps understand individual preferences.

In all the choice experiments, there are two common components: the availability of a status quo option, and the price for choosing any non-status quo option. We can thus test for the effects of an individual’s personality their tendency to prefer the status quo i.e. to prefer no change, and second, a tendency to prefer choices with the lowest private cost. We can also investigate the effects of personality type on preferences for changes in the environmental attributes in each design. We hypothesize that at least three of the personality traits, conscientiousness, neuroticism, and openness will have an influence on behaviour in our choice experiments and therefore influence the willingness to pay via preferences for maintain the status quo and personal cost.  Personality would then emerge as a new, measurable way of representing preference heterogeneity for a potentially wide range of environmental choices.

 


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