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Risk aversion relates to cognitive ability: Fact or Fiction?

  • 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)

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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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2013/1310.pdf
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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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