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The role of education interventions in improving economic rationality

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Science  05 Oct 2018:
Vol. 362, Issue 6410, pp. 83-86
DOI: 10.1126/science.aar6987

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Educating for economic rationality

The hypothesis that education enhances economic decision-making has been surprisingly underexplored. Kim et al. studied this question using a randomized control trial in a sample of 2812 girls in secondary schools in Malawi. Four years after providing financial support for a year's schooling, they presented the subjects with a set of decision problems (for example, allocating funds to immediate versus future expenses) that test economic rationality. The education intervention enhanced both educational outcomes and economic rationality as measured by consistency with utility maximization in the long run.

Science, this issue p. 83

Abstract

Schooling rewards people with labor market returns and nonpecuniary benefits in other realms of life. However, there is no experimental evidence showing that education interventions improve individual economic rationality. We examine this hypothesis by studying a randomized 1-year financial support program for education in Malawi that reduced absence and dropout rates and increased scores on a qualification exam of female secondary school students. We measure economic rationality 4 years after the intervention by using lab-in-the-field experiments to create scores of consistency with utility maximization that are derived from revealed preference theory. We find that students assigned to the intervention had higher scores of rationality. The results remain robust after controlling for changes in cognitive and noncognitive skills. Our results suggest that education enhances the quality of economic decision-making.

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