Behavioral dynamics in transitions from college to the workforce

Abstract

This paper examines how decision-making may change when individuals face a permanent change in financial resources after a major life transition. We experimentally elicit preference and cognitive measures from Colombian students on the job market, as well as from a comparison group of college peers in lower years, over 8 months. This period encompasses the job search process while students are in college and ends after they graduate and begin their full-time jobs. Using a difference-in-differences setup, we find that students entering the job market perceive greater financial liquidity and take on more responsibilities. We do not find any evidence of an increase in the take-up of credit or of students moving out of their parents’ homes, features commonly associated with this transition in other countries. Regarding preferences, we find suggestive evidence that the students become less present biased and more prosocial during this transition to the workforce. We do not find significant changes in risk and ambiguity preferences or cognitive performance. These findings help us document the changes experienced during a universal transition, one that is achieved through own effort rather than cash transfers or government policies.