Are Risk Aversion and Impatience Related to Cognitive Ability?

Thomas Dohmen, Armin Falk, David Huffman and Uwe Sunde

No 2735, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with significantly more impatient behavior in the experiments, and with greater risk aversion. This relationship is robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

Keywords: risk preference; time preference; cognitive ability; field experiment (search for similar items in EconPapers)
JEL-codes: C93 D01 D80 D90 J24 J62 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2007-04
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

Published - revised version published in: American Economic Review, 2010, 100 (3), 1238–1260

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https://docs.iza.org/dp2735.pdf (application/pdf)

Related works:
Journal Article: Are Risk Aversion and Impatience Related to Cognitive Ability? (2010)
Working Paper: Are risk aversion and impatience related to cognitive ability? (2010)
Working Paper: Are Risk Aversion and Impatience Related to Cognitive Ability? (2009)
Working Paper: Are risk aversion and impatience related to cognitive ability? (2009)
Working Paper: Are risk aversion and impatience related to cognitive ability? (2009)
Working Paper: Are Risk Aversion and Impatience Related to Cognitive Ability? (2008)
Working Paper: Are Risk Aversion and Impatience Related to Cognitive Ability? (2007)
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