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Risk aversion relates to cognitive ability: Fact or Fiction?

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Author Info

  • Ola Andersson

    (Research Institute of Industrial Economics (IFN))

  • Håkan J. Holm

    (Lund University - Department of Economics)

  • Jean-Robert Tyran

    (Centre for Economic Policy Research (CEPR), University of Vienna, Department of Economics, Copenhagen University)

  • Erik Wengström

    (Department of Economics, Copenhagen University)

Abstract

Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation might be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Structural estimation allowing for heterogeneity of noise yields no significant relation between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making rather than to risk preferences.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 13-10.

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Length: 38 pages
Date of creation: 04 Sep 2013
Date of revision:
Handle: RePEc:kud:kuiedp:1310

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Keywords: risk preference; cognitive ability; experiment; noise;

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Citations

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Cited by:
  1. Filippin, A. & Crosetto, P., 2014. "A reconsideration of gender differences in risk attitudes," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 2014-01, Grenoble Applied Economics Laboratory (GAEL).
  2. Jan-Erik Lönnqvist & Markku Verkasalo & Gari Walkowitz & Philipp C. Wichardt, 2014. "Measuring Individual Risk Attitudes in the Lab: Task or Ask? An Empirical Comparison," Kiel Working Papers 1905, Kiel Institute for the World Economy.
  3. Adam Eric Greenberg, 2013. "When imagining future wealth influences risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(3), pages 268-277, May.
  4. Vieider, Ferdinand M. & Truong, Nghi & Martinsson, Peter & Pham Khanh Nam & Martinsson, Peter, 2013. "Risk preferences and development revisited: A field experiment in Vietnam," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-403, Social Science Research Center Berlin (WZB).
  5. Andersson, Ola & Holm, Håkan J. & Tyran, Jean-Robert & Wengström, Erik, 2013. "Risking Other People’s Money: Experimental Evidence on Bonus Schemes, Competition, and Altruism," Working Paper Series, Research Institute of Industrial Economics 989, Research Institute of Industrial Economics.
  6. Andersson, Ola & Holm, Håkan J. & Tyran, Jean-Robert & Wengström, Erik, 2013. "Deciding for Others Reduces Loss Aversion," Working Paper Series, Research Institute of Industrial Economics 976, Research Institute of Industrial Economics.

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