Education and anomalies in decision making: Experimental evidence from Chinese adult twins

We estimate the effects of education on two dimensions of decision making behavior—risk and time—beyond those considered to be normal-ranged to encompass behavioral anomalies with respect to expected utility as well as time consistency. We conduct a number of incentivized choice experiments on Chinese adult twins to measure decision making behavior, and use a within-twin-pair fixed-effects estimator to deal with unobservable family-specific effects. The estimation results show that a higher education level tends to reduce the degree of risk aversion towards moderate prospects, moderate hazards, and longshot prospects. For anomalies under risk and uncertainty, college graduates exhibit significantly more Allais-type behavior compared to high school dropouts, while high school graduates exhibit more ambiguity aversion as well as a familiarity preference relative to high school dropouts. For decision making involving time, a higher education level tends to reduce the degree of impatience, and to reduce behavioral anomalies including hyperbolic discounting, dread, and hopefulness. The experimental observations suggest that people with a higher education level tend to exhibit more behavioral anomalies in risk attitudes but fewer behavioral anomalies involving time, hence implying that education has multi-functions in preference formation and human capability building. This study contributes to the understanding of the nature of these behavioral anomalies and the roles of education in human decision making.