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Cognitive Abilities and Behavioral Biases

Jörg Oechssler, Andreas Roider () and Patrick Schmitz

No 08-05, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

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.

Date: 2008-05-19
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Related works:
Journal Article: Cognitive abilities and behavioral biases (2009) Downloads
Working Paper: Cognitive Abilities and Behavioral Biases (2009) Downloads
Working Paper: Cognitive Abilities and Behavioral Biases (2009) Downloads
Working Paper: Cognitive Abilities and Behavioral Biases (2008) Downloads
Working Paper: Cognitive Abilities and Behavioral Biases (2008) Downloads
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