Cognitive abilities and risk taking: the role of preferences

Michalis Drouvelis and Johannes Lohse

Discussion Papers from Department of Economics, University of Birmingham

Abstract: A growing literature in economics suggests that cognitive abilities and risk preferences could be related. However, since neither risk preferences nor cognitive abilities can be observed directly, it is unclear whether measured associations point towards a true relationship or instead result from systematic measurement errors. Previous studies, which have raised this concern, only test this proposition indirectly. In this paper, we complement their approach by providing a direct test that sheds light on the existence and direction of a link between risk preferences and cognitive abilities once systematic measurement errors are taken into account. Using a lab experiment that employs a repeated choice design, we give participants the opportunity to revise an initial choice made in a simple lottery task. We measure cognitive abilities via the cognitive reflection task and affect individuals' access to cognitive resources by exogenously varying their cognitive load across treatments. Our results provide evidence that cognitive abilities remain strongly correlated with risk preferences after errors are controlled for.

Keywords: cognitive abilities; risk preferences; repeated choice design; experiment (search for similar items in EconPapers)
JEL-codes: C90 D81 D91 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-02
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:20-02

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