An Economic Model of Locus of Control and the Human Capital Investment Decision

This paper presents an economic model of how teenagers’ outlooks–specifically their locus of control–affect human capital investments. Locus of control, or internal-external attitudes, is a psychological measure of a person’s belief regarding the causal relationship between his or her own behavior and outcomes. The model allows locus of control to operate through teenagers’ assessment of the return to human capital investments and has testable implications that distinguish it from a model in which locus of control is a proxy for unobserved ability. The effect of eighth graders’ locus of control on their decisions to complete high school and to attend college is empirically examined using the National Education Longitudinal Study of 1988. The empirical results indicate that locus of control strongly influences the decision to invest in education. The results also show that locus of control operates through teenagers’ expectations of the returns to human capital investments, confirming the implications of the theoretical model.