Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 613: Trapped, Delayed and Handicapped

Anna Sjögren () and Susanna Sällström ()
Additional contact information
Anna Sjögren: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Susanna Sällström: Faculty of Economics and Politics, Postal: Cambridge University, and St John's College, Cambridge, CB2 1TP, UK

Abstract: The dynamics of self-confidence are modelled in an environment where rational individuals optimally choose educations 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 their labor market entry. The model can explain differences in perseverance in the face of failure.

Keywords: Self-Confidence; Self-Selection; Skill Accumulation; Bayesian Learning

JEL-codes: D83; J24

42 pages, March 16, 2004

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