Cognitive Abilities and Behavioral Biases

Jörg Oechssler, Andreas Roider and Patrick Schmitz

No 3481, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We use a simple, three-item test for cognitive abilities to investigate whether established 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 probabilities, 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: cognitive abilities; biases; behavioral finance; cognitive reflection test (search for similar items in EconPapers)
JEL-codes: C91 D80 D90 J24 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2008-05
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published in: Journal of Economic Behavior and Organization, 2009, 72 (1), 147-152

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Related works:
Journal Article: Cognitive abilities and behavioral biases (2009)
Working Paper: Cognitive Abilities and Behavioral Biases (2009)
Working Paper: Cognitive Abilities and Behavioral Biases (2009)
Working Paper: Cognitive Abilities and Behavioral Biases (2008)
Working Paper: Cognitive Abilities and Behavioral Biases (2008)
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