DP3335 Trapped, Delayed and Handicapped

Author(s): Susanna Sällström, Anna Sjogren
Publication Date: April 2002
Keyword(s): bayesian learning, self-confidence, self-selection, skill accumulation
JEL(s): D83, J24
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3335

The dynamics of self-confidence are modelled in an environment where rational individuals optimally choose education and occupations with the aim to acquire productive skills while learning about ability. It is shown how the presence of uninformative options can trap individuals below their potential. Furthermore the trade-off between probability of success and value of skills may induce uncertain individuals to acquire less productive skills on their way to ability intensive occupations. The value of information also induces uncertain individuals to delay labour market entry. The model can also explain differences in perseverance in the face of failure.