Heckman Links Psychology and Economics in Plenary Session

Personality traits may help explain how people make decisions in risky situations. This is the idea behind a study presented this Friday (the 17th) by James Heckman, winner of the 2000 Nobel Prize in Economics, during the 25th Conference of the Society for the Advancement of Economic Theory (SAET), held at IMPA.

The University of Chicago economist explained how his research seeks to bridge the gap between economics and psychology by incorporating personality traits into econometric models used to understand decision-making under risk. Rather than treating economic preferences as fixed characteristics, the study investigates how they relate to cognitive abilities, personality, and individual experiences.

The study, which is still in progress, uses the so-called Big Five—the five major dimensions of personality studied in psychology—and seeks to relate them to economic factors, such as risk aversion and decision-making.

To this end, a team has been tracking approximately 7,000 Chinese students since their early school years. The database compiles information on academic performance, cognitive abilities, evaluations by teachers, parents, and the students themselves, as well as experiments that measure risk preferences.

Among the results presented, Heckman showed that differences often attributed solely to gender become more complex when personality traits are taken into account. According to the researcher, psychological factors help explain how children respond to situations of uncertainty, while socioeconomic characteristics influence this behavior indirectly, through personality.

The Nobel laureate emphasized, however, that the conclusions are still preliminary. “This is still a research program; it is not a settled matter.” In explaining the purpose of the work, he stated that the goal is to build a bridge between two fields that have historically evolved separately.

“We are trying to link these characteristics—which psychologists have developed as ways to describe the heterogeneity among individuals—and see how they relate to measures of economic preference,” he explained.

For Rogério Mazzali, a professor at the University of Brasília (UnB), one of the main merits of the research is that it broadens the way economics understands human behavior.

“Professor James Heckman presented a model that begins to incorporate psychological factors into econometric modeling of the economy—something we don’t normally do. (…) What he shows is that the issue is a bit more complex, because behaviors such as risk aversion depend on individuals’ personality traits,” he explained.

Ricardo Paes de Barros and James J. Heckman

The 25th SAET began at IMPA last Monday (the 13th) and ends this Saturday (the 18th) with a tribute to IMPA researcher emeritus Aloisio Araujo, who turned 80 in January. Before the plenary session, Heckman paid tribute to Araujo. “Aloisio deserves a great deal of recognition,” he said.