Disparities in psychological traits and incomes
There are pronounced racial, ethnic, and gender gaps in income in the U.S. We investigate whether these correspond with differences in competitiveness, risk tolerance, and confidence relative to performance in a large, stratified sample of the U.S. prime-age population. We find substantial differences in all three traits across Black, Hispanic, and White males and females. These traits predict individual income. Competitiveness and risk tolerance help explain the White gender income gap. Competitiveness also affects the Black-White income gap between men. Confidence about one’s performance helps explain a substantial and significant portion of all five race-gender income gaps with White men.
That is from a new paper by Aurélie Dariel, John Ham, Nikos Nikiforakis, and Jan Stoop. The number of data points is 2,463. Here is one sentence from the paper:
The sizes of the effects are substantial: individuals above the median in terms of competitiveness and risk tolerance,
for instance, have incomes that are 21.2% and 15.7% higher than those below the median, respectively, when jointly estimated. Confidence in relative performance is also associated with income: individuals in the upper and lower third of the distribution (the upper third being overconfident and the lower third being underconfident) have incomes that are 23.5% and 16.7% lower than the middle third, who are better at evaluating their relative performance.
And this:
We find that controlling for confidence substantially and significantly reduces the unexplained income gaps between White men and all of our other five REG groups; the effects range from 7.2% of the differential (White women versus White men) to 18.7% (Hispanic men versus White men). Only controlling for competitiveness significantly reduces the unexplained income gap between White women and White men by 5.9%, but increases the unexplained income gap between Black men and White men by 5.1%. Only controlling for risk tolerance, on the other hand, does not significantly affect any of the income gaps, with the exception of a (marginally) significant reduction of 4.1% in the gap between White women and White men. Jointly controlling for the three traits significantly reduces the unexplained income gap between Black women and White men (by 15.2%), Hispanic women and White men (by 11.5%), and White women and White men (by 15.0%). However, these traits do not explain the gap between Black men and White men, as the overconfidence and competitiveness effects go in opposite directions.
All worthy of a ponder. I did find this result of particular interest:
On average, Blacks and Hispanics are 9.7% more competitive than Whites.
You will note this is based on self-reports. While self-reports often are more reliable than outsiders might think, are they so reliable for making comparisons across different groups in this manner? And the variable “confidence in relative performance” — might that be a proxy for other, unobserved but also quite real factors?
Via a loyal MR reader, and I commend the researchers for their courage, even if I am not convinced by everything they have done.