Cognitive Abilities and Behavioral Biases

Jörg Oechssler, Andreas Roider () and Patrick W. Schmitz

No 465, Working Papers from University of Heidelberg, Department of Economics

Abstract: We use a simple, three-item test for cognitive abilities to investigate whether es- tablished behavioral biases that play a prominent role in behavioral economics and finance are related to cognitive abilities. We find that higher test scores on the Cognitive Reflection Test of Frederick (2005) indeed are correlated with lower incidences of the conjunction fallacy, conservatism in updating probabil- ities, and overconfidence. Test scores are also significantly related to subjects' time and risk preferences. We find no influence on anchoring. However, even if biases are lower for people with higher cognitive abilities, they still remain substantial.

Keywords: behavioral finance; biases; cognitive abilities; cognitive reflection test. (search for similar items in EconPapers)
JEL-codes: C91 D80 D90 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo
Date: Written 2008-05
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Related works:
Working Paper: Cognitive Abilities and Behavioral Biases (2008)
Working Paper: Cognitive Abilities and Behavioral Biases (2008)
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