This paper analyses the welfare effects of price restrictions on private contracting in a world where agents have a limited cognitive ability. People compute the costs and benefits of entering a transaction with an error. The government knows the distribution of true costs and benefits as well as that of errors. By imposing constraints on transaction prices, the government eliminates some that are on average inefficient--because the price signals that one of the parties has typically grossly overestimated its benefit from participation. This policy may increase aggregate welfare even though some of the transactions being blocked are actually efficient. The paper also studies the extent to which the use of private consultants with sufficient intelligence by people with limited intelligence may dominate government regulation.
Empirical research suggests that the cognitively able are politically more influential than the less able, by being more likely to vote and to assume leadership positions. This study asks whether this pattern matters for public policy by investigating what role a person's cognitive ability plays in determining his preferences for redistribution of income among citizens in society. To answer this question, we use a unique Swedish data set that matches responses to a tailor-made questionnaire to administrative tax records and to military enlistment records for men, with the latter containing a measure of cognitive ability. On a scale of 0 to 100 percent redistribution, a one-standard-deviation increase in cognitive ability reduces the willingness to redistribute by 5 percentage points, or by the same amount as a $35,000 increase in mean annual income. We find support for two channels mediating this economically strong and statistically significant relation. First, higher ability is associated with higher income. Second, ability is positively correlated with the view that economic success is the result of effort, rather than luck. Both these factors are, in turn, related to lower demand for redistribution ; Financial support for this project is gratefully acknowledged from: the Ragnar Söderberg Foundation (http://ragnarsoderbergsstiftelse.se/, grant number: E56-10), Kungliga VetenskapsAkademin (http://www.kva.se/, grant number: FOA10H-172) and the Lab for Economics Applications and Policy at Harvard (http://leap.fas.harvard.edu/, grant number: 370 31890 017599 619701 0012 50963). Publication of this article was funded in part by the George Mason University Libraries Open Access Publishing Fund
Purpose Cognitive ability tests demonstrate strong relationships with job performance, but have several limitations; notably, subgroup differences based on race/ethnicity. As an alternative, the purpose of this paper is to develop a working memory assessment for personnel selection contexts.
Design/methodology/approach The authors describe the development of Global Adaptive Memory Evaluation (G.A.M.E.) – a working memory assessment – along with three studies focused on refining and validating G.A.M.E., including examining test-taker reactions, reliability, subgroup differences, construct and criterion-related validity, and measurement equivalence across computer and mobile devices.
Findings Evidence suggests that G.A.M.E. is a reliable and valid tool for employee selection. G.A.M.E. exhibited convergent validity with other cognitive assessments, predicted job performance, yielded smaller subgroup differences than traditional cognitive ability tests, was engaging for test-takers, and upheld equivalent measurement across computers and mobile devices.
Research limitations/implications Additional research is needed on the use of working memory assessments as an alternative to traditional cognitive ability testing, including its advantages and disadvantages, relative to other constructs and methods.
Practical implications The findings illustrate working memory's potential as an alternative to traditional cognitive ability assessments and highlight the need for cognitive ability tests that rely on modern theories of intelligence and leverage burgeoning mobile technology.
Originality/value This paper highlights an alternative to traditional cognitive ability tests, namely, working memory assessments, and demonstrates how to design reliable, valid, engaging and mobile-compatible versions.
