 853
Economics and psychology have long tra -
ditions investigating preferences that affect 
choices. Psychologist L. L. Thurstone (1927) 
created the modern framework for charac -
terizing choices among discrete outcomes 
used in psychology and economics. Using 
that framework, economists and psycholo -
gists investigate (1) attitudes toward risk 
(“risk aversion”), (2) responses to ambiguous 
situations (ambiguity aversion), (3) valuation 
of future benefits relative to current benefits 
(time preference), (4) altruism, (5) positive 
and negative reciprocity, (6) trust, and (7) 
the ability to make rational decisions, which 
is closely related to intelligence (Choi, Kariv, 
Müller, & Silverman, 2014). Many other 
aspects of choice behavior are studied in 
both standard neoclassical and behavioral 
economics, as well as psychology (for dis -
cussions, see A. Becker, Deckers, Dohmen, 
Falk, & Kosse, 2012; Loewenstein, Weber, 
Hsee, & Welch, 2001; Falk, Becker, Doh -
men, Huffman, & Sunde, 2016).
Economists and psychologists also assess 
life- relevant skills. The dominant paradigm 
in economics is the human capital model de -
veloped by G. Becker (1964). In that frame -
work, human capital is usually envisaged as 
a homogenous substance that raises produc -tivity in the workplace and in the home. It 
is a skill produced by families, schools, and 
firms, and it is embodied in individuals. 
Variations in levels of human capital explain 
variations in earnings and other lifetime 
outcomes such as health, employment, and 
wealth, to name only a few.
In the early days of human capital theory, 
there was a raging controversy associated 
with the “signaling hypothesis” (see Spence, 
1972) that claimed job market returns to 
schooling reflect only a return to cognitive 
ability, and not to any acquired skill. IQ and 
human capital were assumed to be measured 
on the same one-  dimensional scale.
As economists developed a deeper under -
standing of the determinants of earnings, 
they discovered that multiple skills are re -
quired in various labor market and life tasks 
(see Roy, 1951; Mandelbrot, 1962; Bowles 
& Gintis, 1976). These skills include consci -
entiousness, ability to work with others, and 
a variety of attributes that personality psy -
chologists codified and analyzed. While the 
evidence was initially fragmentary, it was 
strongly suggestive and stimulated much 
further work. Relevant market skills were 
understood to be heterogenous in nature. 
Different labor market and life tasks require CHAPTER 42
Some Contributions of  Economics 
to the Study of Personality
James J. Heckman  
Tomáš Jagelka  
Tim Kautz