Waiting for Income

Save your money. (Barney Large Coin
Piggy Bank from www.amazon.co.uk)

Welcome back. Today’s question is Why do some people make more money? If I may get personal, what factors had the greatest effect on your earnings? Go ahead, fill in the blanks.

Researchers from Temple University did. Along with the expected results, such as education and occupation, they found one interesting surprise: Delay discounting ranked high as a predictor of future income.

What’s Delay Discounting?
If you had to choose between receiving $1 today or $2 tomorrow, would you take the $1? Those who take the smaller reward today rather than wait for the larger reward tomorrow are discounting the value of the future reward. Delay discounting refers to how much a person devalues future rewards compared to present rewards.

The classic studies of delayed gratification--the marshmallow experiment--were conducted at Stanford University in the late 1960s and early 1970s. Children were offered one reward (e.g., a marshmallow) immediately or two rewards if they waited about 15 minutes while the person administering the test left the room. Get this: Follow-up studies found children who waited longer tended to have better life outcomes.

Factors Related to Future Income
To improve upon earlier investigations of income attainment, the Temple researchers tested a large, diverse population: 2,564 racially and ethnically heterogeneous, male and female participants, 25 to 65 years in age, pre-high school to PhD in education, $10,000 to $235,000 in annual income and from over 1,700 zip codes.

In addition, they employed a novel analytic approach, using three machine-learning algorithms to model the relationship between income and key factors identified in earlier research--age, gender, ethnicity, height, race, zip code, education, occupation and delay discounting behavior.

Measuring Delay Discounting
Test participants were initially asked to choose between $500 immediately versus $1,000 at five different delays (1 day, 1 week, 1 month, 6 months, 1 year). If they chose the immediate reward, the next question offered an immediate reward midway between the prior immediate reward and zero. If they chose the delayed reward, the next question offered an immediate reward midway between the prior immediate reward and $1,000.

This narrowing pattern continued until participants’ choices converged on the dollar amount subjectively equivalent to the discounted delayed reward if the value were offered immediately. Lower dollar amounts indicated increased devaluation of delayed rewards in favor of immediate rewards.

Study Findings
Modeling with the three machine-learning algorithms, the researchers found that individual differences in income were explained by factors that could be ranked in a consistent manner.

Average ranking of factors according to how well they predicted salary by three machine-learning algorithms (from www.frontiersin.org/articles/10.3389/fpsyg.2018.01545/full).

Occupation and education were paramount with each algorithm, and on average, zip code and gender were the next most important factors. The fifth most important factor was delay discounting, which was more predictive than ethnicity, height age and race.

One study shortcoming is that representation of African Americans and Hispanics in the sample population was only about half that in the U.S. population at large.

Wrap Up
As to why individual differences in discounting of future rewards predicts income attainment, the researchers speculate that it may be a consequence of the correlation between higher discounting and undesirable life choices.

Difficulties delaying gratification may also be affected by episodic future thinking, i.e., the ability to project oneself into the future to pre-experience an event. If people can vividly imagine themselves in the future with the larger rewards, they are more likely to be patient.

So, relax. As you’ve likely heard, all things come to those who wait. Thanks for stopping by.

P.S.
Study of delay discounting for income attainment in Frontiers in Psychology journal: www.frontiersin.org/articles/10.3389/fpsyg.2018.01545/full
Articles on study on ScienceDaily and ScienceAlert websites: www.sciencedaily.com/releases/2018/09/180903101741.htm
www.sciencealert.com/your-ability-delay-instant-gratification-predict-money-earn-delay-discounting-marshmallow-test
Marshmallow experiment: en.wikipedia.org/wiki/Stanford_marshmallow_experiment
Update study of children’s delay of gratification in Developmental Psychology journal: psycnet.apa.org/record/2018-29923-001?doi=1

A version of this blog post appeared earlier on www.warrensnotice.com.

Salary vs. Looks

Wage structure modified
from www.slideshare.net

Welcome back. You know, of course, that attractive people get paid more than unattractive people, right? I mean, they proved that years ago. There have been studies, even a book about it.

Oops. It’s not fake news, but it is wrong. Researchers from the London School of Economics and Political Science and the University of Massachusetts recently found there’s more to it than simply a premium for beauty or penalty for ugliness.

Data Source: "Add Health"
The researchers tested for an effect of physical attractiveness on earnings using data from the National Longitudinal Study of Adolescent to Adult Health (Add Health).

Add Health has followed a large nationally representative sample of Americans from 1994-95, average age 16, through 2008, average age 29, conducting four in-home interviews over the years. (A fifth is underway.) The survey data includes social, economic, psychological and physical well-being along with background data on family, neighborhood, community, school, friendships, peer groups and romantic relationships.

The National Longitudinal Study of Adolescent to Adult Health research design. (www.cpc.unc.edu/projects/addhealth/design)

Among the Add Health data relevant for the researchers’ study were: interviewers’ ratings of the participants’ physical attractiveness on a five-point scale; participants’ gross annual earnings at age 29, occupations, self-ratings of health on a five-point scale at each age and height at age 29; measures of intelligence at different ages; and measures of the Big Five personality traits (openness, conscientiousness, extraversion, agreeableness, neuroticism).

In an effort to control for demographic and socioeconomic factors, the researchers also incorporated participants’ gender, race, education, childhood gross family income at 16 and parents’ education.

Attractiveness Effect 
There are three general explanations for ways earnings could be affected by physical attractiveness--discrimination, self-selection and individual differences.

Less attractive individuals might be paid less because of discrimination by employers, coworkers or clients. The researchers ruled that out, finding the association between attractiveness and earnings did not vary uniformly as would be expected with discrimination. For example, very unattractive participants always earned significantly more than unattractive participants and sometimes more than average-looking or attractive participants.

While it’s conceivable that individuals of various levels of attractiveness sort themselves into occupations that offer different levels of earnings, the researchers found no evidence of occupational self-selection by attractiveness, at least measured by earnings at 29.

Testing if earnings varied because of individual differences, the researchers did find very weak evidence for the beauty premium. But when the individual differences of health, intelligence and personality traits were incorporated, the beauty premium disappeared.

They concluded that it was misleading to attach earnings to a beauty premium or ugliness penalty instead of to the underlying individual health, intelligence and personality differences that increase productivity and affect earnings.

Wrap Up
The researchers posit that earlier findings of a beauty premium and ugliness penalty might be attributable to two factors. First, very unattractive and unattractive workers were often combined into a single below average attractiveness category. Second, earlier studies may not have statistically controlled for health, intelligence (as opposed to education) and the Big Five personality traits.

If you still have doubt, just remember that you can’t judge a book--or the price of a book--by its cover. Thanks for stopping by.

P.S.
Research study in Journal of Business and Psychology: link.springer.com/article/10.1007%2Fs10869-017-9489-6
Article on study on ScienceDaily website: www.sciencedaily.com/releases/2017/02/170216094503.htm
Earlier book and example studies on beauty premium:
press.princeton.edu/titles/9516.html
www.aeaweb.org/articles?id=10.1257/000282806776157515
www.sciencedirect.com/science/article/pii/S0165176509003061
National Longitudinal Survey of Adolescent to Adult Health:
www.cpc.unc.edu/projects/addhealth