Working Papers, Department of Economics, Lund University
Risk Aversion Relates to Cognitive Ability: Fact or Fiction?
(), Jean-Robert Tyran
(), Erik Wengström
() and Håkan J. Holm
Abstract: Recent experimental studies suggest that risk aversion is
negatively related to cognitive ability. In this paper we report evidence
that this relation might be spurious. We recruit a large subject pool drawn
from the general Danish population for our experiment. By presenting
subjects with choice tasks that vary the bias induced by random choices, we
are able to generate both negative and positive correlations between risk
aversion and cognitive ability. Structural estimation allowing for
heterogeneity of noise yields no significant relation between risk aversion
and cognitive ability. Our results suggest that cognitive ability is
related to random decision making rather than to risk preferences.
Keywords: Risk preference; cognitive ability; experiment; noise; (follow links to similar papers)
JEL-Codes: C81; C91; D12; D81; (follow links to similar papers)
38 pages, April 12, 2013, Revised October 21, 2013
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