Economists have long been interested in the link between childhood cognitive skills and adult outcomes. Understanding this relationship has important implications for policymakers, educators, and even parents who strive to get their kids through school well-prepared to launch a successful career. Several studies concentrate on conventional cognitive skills like literacy and math proficiency, but two Purdue economists found that previous economic research on the topic has omitted a skill that is crucial for children to develop into successful adults.
In their discussion paper, “Cognitive Skills, Strategic Sophistication, and Life Outcomes,” published in the Journal of Political Economy, Purdue University Research Center in Economics faculty affiliate and Professor Victoria Prowse and Professor David Gill, in collaboration with coauthor Eduardo Fe of the University of Manchester, emphasize the importance of “theory-of-mind” as a cognitive skill.
Theory-of-mind is the ability to understand the thoughts, beliefs, desires, and emotions of others. Theory-of-mind helps us imagine what others might be thinking or feeling even if their thoughts or feelings differ from our own.
In their paper, Prowse, Gill, and Fe use birth-cohort data from the Avon Longitudinal Study of Parents and Children to analyze how theory-of-mind ability in childhood impacts adult outcomes like social skills and educational participation.
They found that not only does higher theory-of-mind ability correspond to better social skills and higher educational participation, but increased proficiency in theory-of-mind is also tied to better educational attainment, lower fertility in early adulthood, and better work performance in larger firms.
Prowse, the Daniels School of Business' Marge Magner Chair, says that her own theory-of-mind abilities help her perform in her professional life.
“In our roles as educators, we rely on our theory-of-mind to ensure effective instruction,” she says. “I continually strive to understand the perspectives of my students, comprehending what they currently know and identifying what they aspire to learn.”
By using a newly developed conceptual framework devised by Gill, Prowse, and Fe, this study is likely the first of its kind to systematically examine the effects of childhood theory-of-mind on adult outcomes in the context of economic behavior.
The researchers used a variety of strategic interactions to gather experimental data from more than 700 children. By using a competitive game, the researchers found that theory-of-mind and cognitive ability can predict how children anticipate and respond to the actions of others. In other words, theory-of-mind and cognitive ability can both predict “level-k” behavior.
In game theory, the ”k” in “level-k” represents the different levels of strategic thinking (level-0, level-1, and level-2) among different types of individuals in interactive situations like negotiations and, in this case, competitions. Individuals who exhibit level-0 behavior do not consider the actions or strategies of their opponents and make decisions without factoring in what their opponents may do. Level-1 players take their opponent’s actions into account, but they assume their opponent is a non-strategic level-0 player and make decisions based on that belief. Similarly, level-2 thinkers believe their opponents are only level-1 thinkers, which allows them to make sophisticated decisions knowing that their opponent is considering their actions.
“The level-k framework is a relatively simple framework that succinctly organizes differences in behavior by cognitive skills,” says Gill, the James Brooke Henderson Professor in the Department of Economics at the Daniels School.
In this paper, the researchers found that children with higher theory-of-mind ability are more likely to exhibit level-1 behavior and older children are more likely to exhibit level-2 behavior when they face an opponent of high cognitive ability. This provides support for the emergence of a sophisticated strategic theory-of-mind ability in children as young as eight to 12 years old.
Finally, results from a gift-exchange game linked theory-of-mind to driving important aspects of economic behavior like sophisticated decision-making by showing that theory-of-mind and age strongly predict whether children responded to intentions, while cognitive ability has no influence.
“Our experimental results provide evidence that theory-of-mind plays an important role distinct from that of cognitive ability in the development of strategic sophistication in children,” Gill explains.
As teamwork and soft skills become increasingly important for continuous learning and overall success, the researchers anticipate that theory-of-mind will become even more valuable in the future. But what action can be taken to improve theory-of-mind ability in childhood?
Prowse and her colleagues say that investing in education, specifically early childhood education that teaches children how to anticipate the thought processes of others and builds empathy skills, might be the answer. Their evidence indicates that higher levels of primary school spending increases theory-of-mind ability among students, which can lead to better life outcomes in adulthood.
“Investing in early childhood education can yield enormous returns. When implemented effectively, it delivers lifelong benefits not only to the individual but to society at large,” says Prowse.
Prowse and coauthors aim to shape a new research agenda in economics, one that better captures people's comprehension of others' mental processes and emphasizes the significance of theory-of-mind and its cultivation as an important cognitive skill.