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Finance and intelligence: An overview of the literature

Author

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  • Nicolas Eber

    (UNISTRA - Université de Strasbourg, LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)

  • Patrick Roger

    (UNC - Université de la Nouvelle-Calédonie, LARJE - Laboratoire de Recherches Juridique et Economique - UNC - Université de la Nouvelle-Calédonie, EM Strasbourg - École de Management de Strasbourg = EM Strasbourg Business School, LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)

  • Tristan Roger

    (ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)

Abstract

Do more intelligent investors take better economic decisions than less intelligent ones? Is risk attitude, in particular risk/loss aversion, linked to cognitive ability? Does an investor's cognitive ability impact his/her patience? Is financial performance positively linked to investor's intelligence? These research questions have become highly relevant with the development of behavioral economics and behavioral finance, following the recognition that humans are not homo economicus. This paper reviews the several strands of literature devoted to answering the above questions. We first discuss the barely debated definitions and measures of intelligence/cognitive ability used in psychology, economics, and finance. We then review the results related to the (controversial) link between risk aversion and cognitive ability. We observe that the literature provides clear results for patience; individuals with a higher level of cognitive ability being more patient on average. Finally, we review the contributions linking (successfully or not) portfolio choice and financial performance to cognitive ability.

Suggested Citation

  • Nicolas Eber & Patrick Roger & Tristan Roger, 2023. "Finance and intelligence: An overview of the literature," Post-Print hal-04243115, HAL.
    • Handle: RePEc:hal:journl:hal-04243115
    DOI: 10.1111/joes.12583
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