On the Relationship between Cognitive Ability and Risk Preference
Journal of Economic Perspectives
vol. 32,
no. 2, Spring 2018
(pp. 115-34)
(Complimentary)
Abstract
This paper will focus on the relationship between cognitive ability and decision-making under risk and uncertainty. Taken as a whole, this research indicates that cognitive ability is associated with risk-taking behavior in various contexts and life domains, including incentivized choices between lotteries in controlled environments, behavior in nonexperimental settings, and self-reported tendency to take risks. One pattern that emerges frequently in these studies is that cognitive ability tends to be positively correlated with avoidance of harmful risky situations, but it tends to be negatively correlated with risk aversion in advantageous situations. We conclude by discussing perspectives for future research, in particular the scope for the development of richer sets of elicitation instruments and measurement across a wider range of concepts.Citation
Dohmen, Thomas, Armin Falk, David Huffman, and Uwe Sunde. 2018. "On the Relationship between Cognitive Ability and Risk Preference." Journal of Economic Perspectives, 32 (2): 115-34. DOI: 10.1257/jep.32.2.115Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty
- G22 Insurance; Insurance Companies; Actuarial Studies
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