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Risk Aversion Relates to Cognitive Ability: Fact or Fiction?

  • Andersson, Ola

    ()

    (Research Institute of Industrial Economics (IFN))

  • Tyran, Jean-Robert

    (University of Vienna)

  • Wengström, Erik

    (University of Copenhagen)

  • Holm, Håkan J.

    (Lund University)

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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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 964.

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Length: 66 pages
Date of creation: 17 Apr 2013
Date of revision:
Handle: RePEc:hhs:iuiwop:0964
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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