Can cognitive skills and risk aversion explain inconsistent choices? An experiment

Hernan Bejarano and Francisco Galarza ()

No 16-03, Working Papers from Centro de Investigación, Universidad del Pacífico

Abstract: We study the consistency of risk preferences among undergraduate students in a developing country. Our design allow us to elicit consistency at the individual level in which each subject selects his or her most preferred lotteries under two different (but related) risk elicitation tasks. In the first task, subjects choose one lottery out of six alternatives, thus ruling out inconsistency. Our second task is a transformation of the first task into a multiple price-list lottery, intended to examine whether the choice in the first task is also revealed as preferred. Using these choices, we construct our measures of preferences inconsistency, and analyze their correlation with cognitive skills (as measured by Frederick (2005)'s Cognitive Reflection Test—CRT scores and students' GPAs) and risk preferences. We find that a low CRT score and a poor academic performance are, in general, good predictors of inconsistent choices. Results are mixed in terms of the role of risk aversion.

Keywords: Inconsistent choices; risk aversion; cognitive skills; experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://repositorio.up.edu.pe/bitstream/handle/1135 ... quence=1&isAllowed=y Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pai:wpaper:16-03

Access Statistics for this paper

More papers in Working Papers from Centro de Investigación, Universidad del Pacífico Contact information at EDIRC.
Bibliographic data for series maintained by Giit ().