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Are risk aversion and impatience related to cognitive ability?

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  • Dohmen, Thomas J.
  • Falk, Armin
  • Huffman, David
  • Sunde, Uwe

Abstract

This paper investigates whether risk aversion and impatience are correlated with cognitive ability. We conduct incentive compatible choice experiments measuring risk aversion, and impatience over an annual time horizon, for a representative sample of roughly 1,000 German adults. A measure of cognitive ability is provided by two submodules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are statistically and economically significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of liquidity constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20063.

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Date of creation: 2010
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Publication status: Published in American Economic Review 3 100(2010): pp. 1238-1260
Handle: RePEc:lmu:muenar:20063

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