The Shocks and Traits that Shake and Shape Us

Economists have long sought to understand the factors that influence our economic decision-making and lifetime earnings. New evidence challenges the immutability of risk preferences and suggests experiences can shape these preferences. There has also been an emerging literature which examines the impact of personality traits on labor market outcomes. This dissertation uses evidence from Indonesia to explore these topics and determine the impacts of both natural disasters and personality traits on preferences and human capital accumulation. Risk preferences influence many economic decisions and it is plausible that shocks, such as natural disasters, may increase risk aversion and lead to under-investment and over-saving by households. Using data from Indonesia, this dissertation evaluates the impact of disasters on individual risk attitudes at different points in the life cycle. Additionally, Chapters II and III explore the relationship between life experiences, behavioral traits (risk preferences, time preferences, and personality) and labor market outcomes. I find that increases in district disaster mortality in the recent past have a positive and sustained impact on individual risk aversion in adulthood, which fades after a decade. Results also show that earthquakes experienced in childhood influence certain adult outcomes, namely education and earnings, but fail to have an impact on risk or time preference formation, suggesting children at this age are not cognitively mature enough to make associations between the shock and risk. In Chapter III I conclude that personality traits (in particular extraversion, openness, and emotional stability) play a significant role in determining labor market outcomes,and returns differ by gender, region and sector. This research adds to the general understanding of negative shocks during critical life stages as well as the influence of personality traits on economic outcomes. This research may also be useful to policy-makers, especially as governments continue to develop policies for disaster risk reduction, climate change adaptation, and early childhood interventions to mitigate negative life experiences and promote factors that lead to labor market success