Identity and Educational Choice: A Behavioral Approach

Abstract

It is puzzling that socioeconomic background greatly affects educational choice. Since the end of 1970s, despite substantial increasing premiums to high education, the college participation rates in many developed countries has increased more sharply in the high income groups than in the low ones. Distinguished from the explanations based on expected utility theory, this paper assumes that emotional reactions such as self-esteem often diverge from rational cognitive evaluation of the uncertainty in educational investment. Subjective beliefs of wage distribution are different from the objective beliefs. Departing from Akerlof and Kranton (2000 & 2002) who introduce exogenous psychological costs related to one's social category, this paper attempts to explore the psychological mechanisms of generating educational identity and its further impact on schooling choice. It offers a self-signaling model where (1) it incorporates self-esteem concerns into the agent's payoff function, (2) the investment in schooling not only signals her cognitive ability but also brings the agent into cognitive dissonance and reduction when the perceptions of ability are time-dependent. I show a more discriminating analysis of educational choice concerning multi-dimensional factors including socioeconomic background, cognitive and non-cognitive abilities. The central conclusion is that the high ability agent could fail to invest in education, as cognitive ability is not the only reason to invest in education. One adapts her own preference of schooling according to the specific economic and social scenario she faces. The quality of school, the pre-schooling and the social environment (progressive or conservative) are key variables. In particular, the school quality is evaluated with respect to how much market-valued skills the school imparts and a student's ideal educational image close to economically useful cultural norms the school promotes. When the school quality is high enough, the agent invests in education. When the school quality is insufficient, there exist differing psychological self-fulfilling alternatives determined by her preschool education and social environment leading the agent to either investment or not. The threshold of preschool education for the agent to invest is sensitive to the initial beliefs about the distribution of ability type. The model suggests that public policy can help poor children by improving both the early and later education quality at school.