IQ and economic preferences are crucial factors in shaping a person’s life and well-being. More patient individuals, for example, are less likely to be involved in crime, and have higher levels of education and better health. Similarly, people who score higher on intelligence tests tend to achieve greater levels of success in education, occupational status, and income. Social science research has indicated that IQ and preferences, which begin to crystallize in childhood, persist into adulthood, ultimately predicting our habits and important life outcomes.
Early socio-economic differences in preferences and IQ interested IP network leader Armin Falk and his colleagues. In particular, his team wondered if systematic differences in these traits are linked to family environment, providing “further evidence for inequality being founded early in life.” This could in turn have important implications for public policies aimed at boosting social mobility. In a recent HCEO working paper, Falk and his co-authors IP network member Fabian Kosse, ECI network member Pia Pinger, Thomas Deckers and Hannah Schildberg-Hörisch, examine inequalities in IQ and economic preferences between children from high- and low-socioeconomic (SES) families. Moreover, to examine their sources, they develop a framework for how parental investments influence children’s preferences, allowing household SES “to influence both the level of parental time and parenting style investments, as well as the productivity of the investment process.”
Establishing a link between a child’s economic preferences and IQ and family’s socioeconomic status is a challenge, the paper notes, because it requires comprehensive information on household SES and parental investments, as well as high quality measures of the child’s IQ and preferences. The authors collected such data from 435 German children, aged 7 to 9, and their mothers.
“What’s special about the type of data we have collected is that we are combining incentivized, experimental measures of economic and social preferences with very detailed information on the household environment in which the children grow up,” Kosse says.
In their sample, the authors classify families as low-SES if they had low household income, low parental education, and/or were headed by single parents. High-SES families in the group met none of those criteria. The children and their mothers participated in two interviews, held 16 months apart, where the children were tested for their intelligence, answered a questionnaire, and took part in experiments. The experiments were designed to measure patience, risk-taking and altruism by means of incentivized decisions with real life consequences. Meanwhile, the mothers filled out a detailed questionnaire on household income and environment, parenting style, and completed an IQ test.
The results show that SES is a strong predictor of preferences and IQ. “We find pretty large and significant gaps between children from high-SES backgrounds and low-SES backgrounds in all of the preferences and IQ measures we study,” Pinger says. These gaps compare to about half of the black-white achievement gaps in the US, the paper notes.
Children from low-SES families were more impatient, more risk-taking, less altruistic, and had lower IQ scores. “These inequalities in preferences and skills are decisive for the way individuals make economic decisions,” Kosse says. These findings illustrate that, even at elementary-school age, children differ in the way they make economic decisions. The gaps prevail when the results are weighted to be representative of the population.
The researchers then studied the underlying mechanisms of these gaps, a novel step for this area of research. “We set up a framework in which we study how these gaps in preferences and IQ come about and what drives them,” Pinger says. “Most of the differences in preferences and IQ that we find across socioeconomic status are driven by differences in parental investment.”
While the authors provide strong evidence that the seeds of inequality are planted early in life, they also offer helpful policy recommendations for potentially reducing these gaps. They apply the estimates from their model to a variety of measures intended to even the playing field for disadvantaged children. While they acknowledge the relative simplicity of their model, they recommend a few measures aimed at reducing socioeconomic gaps in IQ and preferences. They write that increasing parental education or household income, with policies like the Earned Income Tax Credit, “are relatively more effective in closing the SES gap in IQ, but less effective in altering the SES gaps in economic preferences.” To close SES gaps in economic preferences, they note that policies that increase the parental investment of low-SES families, such as home visiting programs, are effective.
The overall productivity of the IQ and preference formation process hardly differs between high and low SES families. Thus, “if low SES families were to provide the same inputs in terms of maternal IQ and preferences, parenting styles and time investments, they would ‘produce’ children with similar preferences and IQ as high SES families,” the authors write.
“In a way, this is good news because it means that low-SES parents can affect their children’s preferences, and to some extent their IQ, through a change in parental investments,” Pinger says.
These results could have far-reaching implications in the ongoing debate around how best to address the growing levels of inequality across the world. In January, Oxfam released a report showing that 82 percent of the wealth generated in 2017 went to the richest one percent of the global population, while 3.7 billion people - the poorest half of the world - saw no increase in their wealth. This research makes clear that there is a systematic relation between a child’s socioeconomic background and their IQ and economic preferences, which have lifelong ramifications. The findings are in line with much of the research of HCEO Co-director James Heckman, who notes that investing in disadvantaged children early, and fostering parent-child interaction, are crucial ingredients for successful interventions.
Thank you to Armin Falk, Fabian Kosse, Pia Pinger, Thomas Deckers, and Hannah Schildberg-Hörisch for their assistance in completing this article.