880 vIII. EMERGING  ISSuES AND  NEW  DIRECTIONS
over their lives through self-  motivation or 
self- determination, as opposed to the ex -
tent that the environment controls their 
lives (Rotter, 1966).87 He used data from 
the Self-  Sufficiency Project (SSP), in which 
some welfare recipients were randomly of -
fered substantial subsidies to work. The 
subsidy more than doubled the earnings of 
a minimum wage worker. People in the ex -
perimental group worked about 30% more 
hours than those in the control group. After 
36 months, those who received the subsidy 
were more likely to have an improved locus 
of control.
Negative life experiences can have last -
ing effects on preferences and personality 
as well. Americans who experienced sexual 
abuse and parental neglect in childhood ap -
pear to have increased levels of neuroticism 
and lower conscientiousness and openness 
to experience at age 30 (Fletcher & Schurer, 
2017). Afghanis who experienced violence 
exhibit more risk tolerance but also a higher 
preference for certainty when asked to recall 
fearful events (Callen et al., 2014). Further -
more, Malmendier and Nagel (2011) docu -
mented that individuals who experienced 
negative financial events such as the Great 
Depression exhibit a lower willingness to 
take financial risks.88 Anger, Camehl, and 
Peter (2017) showed that sometimes trauma 
can also result in positive changes in per -
sonality. Studying German data, they found 
that job loss due to factory closings increased 
openness to experience for highly educated 
workers, while leaving other dimensions of 
personality unchanged.
Economic preferences have also been 
shown to have a causal impact on out -
comes.89 Montizaan, de Grip, Cörvers, and 
Dohmen (2016) exploited a change in the 
Dutch public pension system in 2006 that 
affected workers born after 1950. By com -
paring the reaction of public sector workers 
born just after the reform took effect to those 
born just before, they found that affected in -
dividuals who scored higher on negative rec -
iprocity reduced their work effort (measured 
by self-  reported on the job motivation). Fur -
thermore, this decline seemed proportional 
to the degree of perceived unfairness—  it is 
larger for workers born very close to the cut -
off date and among those who work with 
many colleagues who were unaffected—  and also the closeness to the “perpetrator” of the 
injustice (those working directly for the cen -
tral government shirk more).
Summary
In this chapter, we have reviewed recent evi -
dence from economics and psychology on 
the importance of personality. The evidence 
shows that success in life depends on many 
skills, not just those measured by IQ, grades, 
and standardized achievements tests. Per -
sonality skills predict and cause  outcomes.
Economic analysis clarifies psychologi -
cal studies by establishing that psychologi -
cal attributes are measured by performance 
on tasks. It enriches the analysis of human 
differences by providing anchored measures 
of economic preferences and studying their 
links to personality and cognitive skills. 
Psychological attributes have different pro -
ductivities in different tasks. Performance 
on tasks depends on incentives and multiple 
skills, giving rise to a fundamental identifi -
cation problem when measuring any single 
skill. This identification problem is empiri -
cally important even for measures of cogni -
tive skills.
The importance of cognitive and noncog -
nitive skills increases with the complexity 
of a task. Given their endowments of skills 
and the incentives they face, people sort into 
tasks in life in pursuit of their comparative 
advantage. Recent research by Caines et 
al. (2017a) and Beaudry, Green, and Sand 
(2016) shows that labor market rewards are 
increasing for those who have large bundles  
of both social and cognitive skills. They per -
form complex tasks. The demand for such 
bundles is increasing, not the demand for 
cognitive or noncognitive skills alone, de -
spite some recent claims to the contrary. In 
fact, there is evidence that the demand for 
cognitive skills alone is in decline (see Caines 
et al., 2017a, 2017b; Beaudry, Green, & 
Sand, 2016), and the evidence for a rise in 
the demand for cognitive or noncognitive 
skills by themselves is debated in the litera -
ture.
Skills are stable across situations. Howev -
er, their manifestations depend on incentives 
to apply effort in the situations where they 
are measured and also on other skills.