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Are risk aversion and impatience related to cognitive ability?

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

Th is paper investigates whether risk aversion and impatience are correlated withcognitive ability. We conduct incentive compatible choice experiments measuringrisk aversion, and impatience over an annual time horizon, for a representative sampleof roughly 1,000 German adults. A measure of cognitive ability is provided by twosubmodules of one of the most widely used IQ tests. Interviews are conducted insubjects’ own homes. We fi nd that lower cognitive ability is associated with greaterrisk aversion, and more pronounced impatience. Th e relationships are statisticallyand economically signifi cant, and robust to controlling for personal characteristics,educational attainment, income, and measures of liquidity constraints. We perform aseries of additional robustness checks, which help rule out other possible confounds.(JEL codes: C93, D01, D80, D90, J24, J62).

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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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