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Cognitive Functioning: An Underlying Mechanism of Age and Gender Differences in Self-Assessed Risk Tolerance among an Aging Population

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  • Muna Sharma

    (Department of Financial Planning, Housing and Consumer Economics, University of Georgia, Athens, GA 30602, USA)

  • Swarn Chatterjee

    (Department of Financial Planning, Housing and Consumer Economics, University of Georgia, Athens, GA 30602, USA)

Abstract

Attitude toward risk plays a vital role in an individual’s financial decision-making and well-being. Past studies have found significant association of age and gender with risk tolerance. However, studies on the factors affecting the underlying mechanism are scant. The purpose of this research is to test whether cognitive functioning mediates the association between age, gender, and self-assessed risk tolerance. Using the 2014 wave of the Health and Retirement Study, path analysis was conducted to test the hypothesized model. Results revealed a negative direct association between age and risk tolerance. Moreover, the study also found a lower level of risk tolerance in women. A bootstrap-based confidence interval revealed that a significant portion of the relationship between age and risk tolerance was mediated by cognition. However, the gender difference in risk tolerance was not explained by cognition. Financial planning practitioners and policymakers should understand the contribution of cognitive functioning toward the difference in risk tolerance in older populations and implement strategies to reinforce cognitive functioning to mitigate the adversity of a low level of risk tolerance.

Suggested Citation

  • Muna Sharma & Swarn Chatterjee, 2021. "Cognitive Functioning: An Underlying Mechanism of Age and Gender Differences in Self-Assessed Risk Tolerance among an Aging Population," Sustainability, MDPI, vol. 13(4), pages 1-9, February.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:4:p:2361-:d:503796
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