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Are Risk Aversion and Impatience Related to Cognitive Ability?

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  • Dohmen Thomas
  • Falk Armin
  • Huffman David
  • Sunde Uwe

    (METEOR)

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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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 040.

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Date of creation: 2009
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Handle: RePEc:unm:umamet:2009040

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Web page: http://www.maastrichtuniversity.nl/
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Keywords: Economics ;

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