Risk aversion relates to cognitive ability: Fact or Fiction

TY - UNPB

T1 - Risk aversion relates to cognitive ability

T2 - Fact or Fiction

AU - Andersson, Ola

AU - Holm, Håkan J.

AU - Tyran, Jean-Robert Karl

AU - Wengström, Erik Roland

N1 - JEL codes: C81; C91; D12; D81

PY - 2013

Y1 - 2013

N2 - 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.

AB - 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.

KW - Faculty of Social Sciences

KW - Risk preference

KW - cognitive ability

KW - experiment

KW - noise

M3 - Working paper

T3 - University of Copenhagen. Institute of Economics. Discussion Papers

BT - Risk aversion relates to cognitive ability

PB - Økonomisk institut, Københavns Universitet

CY - Kbh.

ER -