It Pays to Wait: Patience and Risk Appetite Shape Young People's Choice of Education

Some teenagers are happy to wait for a bigger reward tomorrow rather than cash in today. Others would rather take the sure thing now - or gamble on a risky, high-payoff bet. According to a new study, these everyday differences in patience and risk appetite are more than personality quirks. They help determine which programme an upper secondary graduate chooses - and, with it, the shape of their working life for decades to come.

The study is authored by Kristoffer B. Hvidberg, associate professor at Department of Economics and Business Economics, Aarhus University together with Claus T. Kreiner and Søren Leth-Petersen (University of Copenhagen), Thomas Epper (CNRS, IESEG School of Management), Ernst Fehr (University of Zurich) and Basit Zafar (University of Michigan). The results are published in PNAS (Proceedings of the National Academy of Sciences).

"Economic theory has long predicted that how patient you are, and how much risk you're willing to take, should shape how you invest in your own education. What's new is that we can now show this directly, using real choices in experiments involving real money, linked to data from the Ministry of Higher Education and Science on which programmes people actually apply for," says Kristoffer B. Hvidberg.

Real money, real choices

To measure patience and risk appetite, the researchers didn't rely on a personality questionnaire. Instead, they use responses from more than 3,000 18- and 19-year-olds across Denmark who were randomly invited to take part in an incentivized online experiment in 2018 - at exactly the age when they are approaching, but have not yet made, their choice of higher education. Just over a third logged on and took part.

In the experiment, participants made a series of real financial choices: in one task, they decided how much of a cash amount to save now in return for a larger payout later; in another, they decided how much to invest in a risky gamble versus keeping a safe, certain amount. One of each person's choices was picked at random and paid out for real via MobilePay, the Danish mobile payment app, with an average payout of around DKK 250.

"This kind of incentivized, large-scale experiment linked to real educational choices hasn't been done before. It's what lets us move beyond correlations in survey data and get a genuine read on how patient or risk-tolerant someone is," says Søren Leth-Petersen.

Because Denmark keeps detailed administrative registers, the researchers could then link each young person's measured patience and risk appetite to the higher education programme they went on to apply for through the national admissions system, and to detailed data on how long that programme takes and what its graduates typically earn. The final analysis covers more than 3,000 young people who applied to one of 76 different programmes.
 

Longer programmes or play it safe

Graduates of different programmes go on to very different careers. Those from the five-year economics programme see average annual earnings growth of 11.5 per cent between ages 20 and 45, and just a 3.4 per cent risk of ending up with low earnings later on. For the three-year physiotherapy programme the picture is more modest: earnings growth of 6.3 per cent, and a higher risk of low earnings at 7.1 per cent.

So what kind of young person applies for one programme rather than the other?

The results follow a clear pattern. Young people who showed more patience in the experiment were significantly more likely to apply for longer programmes with steeper earnings growth.

"We rank applicants from 1 to 100 in terms of how patient they are. Moving up ten ranks is associated with almost one and a half years of extra education," says Claus Thustrup Kreiner.

The pattern for risk appetite runs the same way, but for a different set of outcomes. Young people who were more risk-averse in the experiment were more likely to apply for programmes where graduates' future earnings are more predictable, both a lower likelihood of ending up with low earnings, and a smaller spread between what the highest and lowest earners in the programme make.

More than just grades

A natural objection is that patience and risk appetite might simply be standing in for ability or family background - after all, both are known to shape educational choices too. The researchers tested this directly, controlling for school grades and for parents' education and income.

"It's well known that students with better grades, and students from well-educated, higher-income families, tend to choose different types of education. What surprised us is how much explanatory power is left over for patience and risk aversion once we account for all of that." says Kristoffer B. Hvidberg.

Specifically, patience's predictive power for the duration of the chosen programme turns out to be about a quarter of that of school grades; for the risk of ending up with low earnings, risk appetite is about as predictive as grades.

Why it matters

The choice of higher education programme matters not only for how long young people study, but also for the growth and security of their earnings for decades to come. The study therefore points to a behavioural dimension of educational inequality.

“Even after taking grades and family background into account, we find that patience and risk appetite predict which educational paths young people choose. This suggests that unequal economic outcomes may arise not only because young people have different resources and opportunities, but also because educational paths require them to wait for future rewards and accept different degrees of uncertainty. We cannot say from this study that preferences cause inequality, but they appear to be an important - and often overlooked - part of the picture,” says Søren Leth-Petersen.
 

Facts

We strive to comply with Universities Denmark’s principles for good research communication. For this reason, we provide the following information as a supplement to this article: