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Are Risk Aversion and Impatience Related to Cognitive Ability?

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

    (ROA rm)

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 Maastricht University, Research Centre for Education and the Labour Market (ROA) in its series ROA Research Memorandum with number 007.

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Date of creation: 2009
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Handle: RePEc:unm:umaror:2009007
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