This thesis consists of an introduction and three essays studying the role of opportunities, effort and luck in economic decision making. The introduction argues that effort and redistribution choices rely on understanding the relative roles of these factors. Yet, individuals do not know the actual relative roles and act based on beliefs.
Chapter 2 studies the effect of children on the likelihood of self-employment. On the one hand, individuals’ preference for autonomy and flexibility increases when having children, which increases the willingness to be self-employed. On the other hand, having children entails a responsibility over someone else, which increases individual risk aversion and decreases the willingness to be self-employed. Using a pooled cross section of 26 years from the General Social Survey, instrumental variable estimates indicate that, in the USA, having children under the age of 18 in the household decreases the likelihood of being self-employed by 11%.
Chapter 3 theoretically examines whether social segregation can explain differences in beliefs regarding the role of effort in determining high incomes. I develop a model of lineages of agents learning about the effect of effort on the probability of receiving a high income based on their own experience and the experiences of agents in their networks. I find a positive relationship between the degree of social segregation and the level of long-run differences in beliefs, including cases of polarization. Moreover, high levels of social segregation can lead agents to make inefficient effort choices while average beliefs drift away from real parameters.
Chapter 4 presents a lab experiment examining the effect of information regarding effort and opportunities in ex-post redistribution behavior. Participants are randomly endowed one of two probabilities of winning $20 (opportunities). By exerting effort individuals can increase their probability of winning $20, but conditional on effort the difference in probabilities remain constant. Redistribution takes place between a dictator who won $20 and a recipient who won $0. Treatments vary (i) the inequality of opportunities and (ii) information regarding recipients’ effort and opportunities. I find dictators consistently give less to low-effort recipients. However, dictators do not significantly consider opportunities when redistributing.