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Cognitive Skills, Gender and Risk Preferences

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  • Alison L. Booth
  • Pamela Katic

Abstract

In this paper we utilise data from a unique new birth-cohort study to see how the risk preferences of young people are affected by cognitive skills and gender. We find that cognitive ability (measured by the percentile ranking for university entrance at age 18) has no effect on risk preferences measured at age 20. This is in contrast to experimental studies that use IQ measures to proxy cognitive skills. However we do find that gender matters. While young women are significantly more likely than young men to assess themselves as being prepared to take risks, women choose to invest significantly less when they are confronted with a clearly specified investment decision based on hypothetical lottery winnings. This difference between the impact of gender on risk attitudes and the hypothetical lottery investment suggests that impatience and framing affect young women and men differently.
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  • Alison L. Booth & Pamela Katic, 2013. "Cognitive Skills, Gender and Risk Preferences," The Economic Record, The Economic Society of Australia, vol. 89(284), pages 19-30, March.
    • Handle: RePEc:bla:ecorec:v:89:y:2013:i:284:p:19-30
    DOI: 10.1111/1475-4932.12014
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    9. Booth, Alison & Cardona-Sosa, Lina & Nolen, Patrick, 2014. "Gender differences in risk aversion: Do single-sex environments affect their development?," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 126-154.
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    Cited by:

    1. Luis Alejandro Lopez-Agudo & Oscar David Marcenaro Gutierrez & Helena Ferreira-Marques, 2016. "Gender, institutions and educational achievement: a cross country comparison," Investigaciones de Economía de la Educación volume 11, in: José Manuel Cordero Ferrera & Rosa Simancas Rodríguez (ed.), Investigaciones de Economía de la Educación 11, edition 1, volume 11, chapter 20, pages 383-400, Asociación de Economía de la Educación.
    2. Das, Tirthatanmoy & Polachek, Solomon, 2017. "Micro Foundations of Earnings Differences," IZA Discussion Papers 10922, Institute of Labor Economics (IZA).
    3. Muhammad Sajid & Matthew C. Li, 2019. "The role of cognitive reflection in decision making: Evidence from Pakistani managers," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(5), pages 591-604, September.
    4. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2018. "On the Relationship between Cognitive Ability and Risk Preference," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 115-134, Spring.
    5. Nicolas Eber & Patrick Roger & Tristan Roger, 2024. "Finance and intelligence: An overview of the literature," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 503-554, April.
    6. Noah C. Dormady & Robert T. Greenbaum & Kim A. Young, 2021. "An experimental investigation of resilience decision making in repeated disasters," Environment Systems and Decisions, Springer, vol. 41(4), pages 556-576, December.
    7. Prokosheva, Sasha, 2016. "Comparing decisions under compound risk and ambiguity: The importance of cognitive skills," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 64(C), pages 94-105.
    8. repec:cup:judgdm:v:14:y:2019:i:5:p:591-604 is not listed on IDEAS
    9. Zheng Li, 2020. "Experimental Evidence on Socioeconomic Differences in Risk‐Taking and Risk Premiums," The Economic Record, The Economic Society of Australia, vol. 96(313), pages 140-152, June.
    10. Buly A. Cardak & Alison L. Booth & Pamela Katic, 2021. "Cognitive Skills, Gender and Risk Preferences Revisited," Economic Papers, The Economic Society of Australia, vol. 40(4), pages 351-355, December.
    11. Sasha Prokosheva, 2014. "Comparing Decisions under Compound Risk and Ambiguity: The Importance of Cognitive Skills," CERGE-EI Working Papers wp525, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    12. Amador, Luis & Brañas-Garza, Pablo & Espín, Antonio M. & Garcia, Teresa & Hernández, Ana, 2019. "Consistent and inconsistent choices under uncertainty: The role of cognitive abilities," MPRA Paper 95178, University Library of Munich, Germany.
    13. Amador-Hidalgo, Luis & Brañas-Garza, Pablo & Espín, Antonio M. & García-Muñoz, Teresa & Hernández-Román, Ana, 2021. "Cognitive abilities and risk-taking: Errors, not preferences," European Economic Review, Elsevier, vol. 134(C).
    14. Lorenzo Esposito & Lorenzo Marrese, 2021. "The impact of cognitive skills on investment decisions. An empirical assessment and policy suggestions," DISCE - Quaderni del Dipartimento di Politica Economica dipe0019, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    15. Siobhan Austen & Rachel Ong & Sherry Bawa & Therese Jefferson, 2013. "Trends in the Gender Wealth Gap Among Single Households in Australia, 2002-2010," Bankwest Curtin Economics Centre Working Paper series WP1308, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
    16. Lucy F. Ackert & Richard Deaves & Jennifer Miele & Quang Nguyen, 2020. "Are Time Preference and Risk Preference Associated with Cognitive Intelligence and Emotional Intelligence?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 21(2), pages 136-156, April.
    17. Saeid Homayoun & Vahid Molla Imeny & Mahdi Salehi & Mahdi Moradi & Simon Norton, 2022. "Which Is More Concerning for Accounting Professionals-Personal Risk or Professional Risk?," Sustainability, MDPI, vol. 14(22), pages 1-13, November.
    18. Kapri, Kul, 2021. "Court fairness and firm level export decisions," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 269-277.

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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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