Are Risk Aversion and Impatience Related to Cognitive Ability?

By Thomas J. Dohmen, Armin Falk, David Huffman, Uwe Sunde. Social Science Research Network, 2009

1,471 citations recorded by the source corpus.

Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

Subfields: Economics and Econometrics, General Decision Sciences, Safety Research

View Paper: https://www.semanticscholar.org/paper/7afb5cca6b0819be64f57f91014b3257b21f0cff

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In General Decision Sciences

In Safety Research

Citations in the corpus

Cognitive Abilities and Household Financial Decision Making (2013, background): “…it is never optimal to use the new 1 There is growing evidence that cognitive ability is related to behavioral anomalies (e.g., Frederick 2005; Dohmen et al. 2010; Benjamin, Brown, and Shapiro forthcoming) and to financial market outcomes (e.g., Cole, Paulson, and Shastry 2012; McArdle,…”
Gender Differences in Risk Aversion: Do Single-Sex Environments Affect Their Development? (2013, result): “differences in choices under uncertainty is in line with the majority of experimental studies investigating risk choices at a single point in time, as summarized in Eckel and Grossman (2008) and Croson and Gneezy (2009).”
Personality Characteristics and the Decision to Become and Stay Self-Employed (2011, positive): “Furthermore, the experiment by Dohmen et al. (2005) showed that this measure performs better than the lottery measure in predicting behavior.”
Higher Order Risk Attitudes, Demographics, and Financial Decisions (2011, background): “Because most consumer surveys do not elicit incentivized choices (e.g., Barsky et al. 1997; Dohmen et al. 2010), the extent to which decisions involving hypothetical and real payoffs yield similar estimates is of interest.”
Gender Differences in Risk Aversion and Ambiguity Aversion (2009, background): “Dohmen et al. (2008) find that lower cognitive ability and less openness to new experiences predict greater risk aversion.”
Testing the Waters: Behavior across Participant Pools (2018, background): “Following the over-precision task of Ortoleva and Snowberg (2015), participants were asked to guess the number of jellybeans in (a picture of) a jar, and then rate how confident they 18We used variations on the original questions, as some participants may have been exposed to the originals. were abo”
Socioeconomic Status and Inequalities in Children’s IQ and Economic Preferences (2017, neutral): “…with cooperative behavior in various domains of life, including the work place, donating, repayment of loans, ormanagement of common pool resources (Karlan 2005; Dohmen et al. 2009; Rustagi, Engel, and Kosfeld 2010; Carpenter and Seki 2011; Becker et al. 2012; Burks et al. 2016; Deming 2017).”
Living with Floods: Protective Behaviours and Risk Perception of Vietnamese Households (2013, background): “Households who view themselves as less 76 Dohmen et al. (2010) show that patience is associated with higher IQs, which may be associated with better perceptions of the value of information exchange.”
How to measure time preferences in children: a comparison of two methods (2015, background): “…patient adults perform better in their job (Burks et al., 2009), have less credit card debt (Meier and Sprenger, 2010), pursue healthier lifestyles (Bickel et al., 1999; Kirby and Petry, 2004; Chabris et al., 2008; Weller et al., 2008) and exhibit higher cognitive skills (Dohmen et al., 2010).”