Lecture 15: Decision-Making Skills, Job Transitions, and Income

Decision-making skills matter in all phases of life. While being a manager of a fixed group of workers is a particularly salient example of this, there is no realm of behavior in which such skills are irrelevant. In this lecture, I focus on a particularly important set of decisions that are known to have massive impact on lifetime income: decisions on whether and how to search for jobs, including when to quit, what to do in the face of an impending layoff, when to take time out of the labor force and retool, and when to retire. These transitions are important events that appear to have a large effect on income dynamics over the life cycle. When, why, and how such transitions are made is much studied in administrative data. However, the facts alone are not rich enough to determine whether or not there were significant gaps in knowledge and/or illusions that rationalized erroneous decisions. Decision quality is as much about what was not known as what was and about actions that were not taken as much as those that were. In this lecture, I outline research in which measurements are enriched to distinguish between those who make successful labor market transitions and those who do not, thereby to gain insight into the role that decision-making skills play in lifetime income…