Probability Weighting and Cognitive Ability

Syngjoo Choi, Jeongbin Kim (), Eungik Lee () and Jungmin Lee ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: Probability weighting is a major concept for accommodating systemic departures from expected utility theory. We examine the relation between probability weighting and cognitive ability by conducting laboratory experiments with a pool of subjects with unusually large variation in cognitive ability; native-born South Koreans and North Korean refugees. We find that cognitive ability is related to two distinct features of probability weighting-likelihood insensitivity and optimism. Particularly, the negative association between likelihood insensitivity and cognitive ability is robust to potential confounders and stronger among lower cognitive-ability subjects. Our findings shed light on the sources of anomalous choices against expected utility theory.

Keywords: probability weighting; cognitive ability; likelihood insensitivity; North Korean refugees (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 D91 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-neu and nep-upt
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Citations: View citations in EconPapers (2)

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Journal Article: Probability Weighting and Cognitive Ability (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:snu:ioerwp:no121

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