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Risk Aversion Relates to Cognitive Ability: Fact or Fiction?

Ola Andersson, Jean-Robert Tyran (), Erik Wengström () and Hakan Holm ()

No 964, Working Paper Series from Research Institute of Industrial Economics

Abstract: 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.

Keywords: Risk preference; Cognitive ability; Experiment; Noise (search for similar items in EconPapers)
JEL-codes: C81 C91 D12 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-dcm, nep-evo and nep-upt
Date: 2013-04-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

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Working Paper: Risk Aversion Relates to Cognitive Ability: Fact or Fiction? (2013) Downloads
Working Paper: Risk aversion relates to cognitive ability: Fact or Fiction? (2013) Downloads
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