PARC Working Paper Series

Document Type

Working Paper

Date of this Version



Shore, Stephen H., Daniel Barth, and Shane T. Jensen. 2012. "Identifying Idiosyncratic Career Taste and Skill with Income Risk." PARC Working Paper Series, WPS 12-02.


How important to well-being is choosing a career with the right fit? This question is difficult to answer because we observe individuals only in their chosen careers, not in the other (presumably inferior) options they did not choose. To overcome this problem, we use expected utility to cardinalize a logit model of career choice in a setting where we observe the income risk of chosen careers and the risk-aversion of the people who choose them. The key parameter of interest - the importance of idiosyncratic taste and skill in career choice - is identified from the shift in the distribution of income risk with risk aversion. We estimate the model using individual-specific measures of income volatility to proxy for income risk and survey questions about hypothetical income gambles to proxy for risk preference, both from the PSID. We separate idiosyncratic career taste from skill using the pay gap between high and low-income risk people with high and low risk-aversion.


Career choice, Idiosyncratic taste and skill, Income risk, Occupational choice



Date Posted: 07 November 2012