The Knowledge Premium

The Knowledge Premium is a section in “Head In The Cloud,”  an important book by William Poundstone.  In this section he computes the monetary value of having facts in our brains as opposed to being in the cloud.  He uses regression techniques  to relate the scores on his knowledge of facts tests and to hold constant demographic variables such as differences in age and education.  This allows the computation of a knowledge premium, the increased income accountable to the test scores alone.  Poundstone created a trivia quiz that found that individuals who aced the test earned $94,959 and those who scored zero earned $40,360.  The difference, or knowledge premium is $54,599 a year.  Here are some of the questions that were used on this ten item test.

Who was Emily Dickinson—a chef, a poet, a designer, a philosopher or a reality-show star?
Which happened first, the US Civil War or the Battle of Waterloo?
Which artist created this painting?  (Shown was Picasso’s 1928 Painter and Model)
Which nation is Cuba? (Respondents had to locate it on a map)

These questions were characterized as trivial not because the information is unimportant, but because it seems to have nothing to do with basic survival or with make money.  But the statistic computed from this test says that it has a lot to do with making money.

Answers:  Dickinson was a poet; the Battle of Waterloo.  The Emily Dickinson question was answered by 93% correct, with about 70 to 75% answering the other questions correctly.

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