Risk Preferences, Cognitive Ability and Personality
Risk Preferences, Cognitive Ability and Personality

Author: Yue Bao

Publisher: LAP Lambert Academic Publishing

Published: 2013

Total Pages: 180

ISBN-13: 9783659486890

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Risk aversion is the reluctance of a subject who value a certain gain higher than a risky gain, when both have the same expected value, and loss aversion refers to the tendency for a subject dislike a loss more than they favor a gain of the same expected value. This book investigates whether Danes are in general risk and loss averse, and test whether risk and loss aversion are related to cognitive ability, certain personality traits, and some demographics. Key findings: 1) Risk and loss aversion is a realistic characterization of average subjects; 2) The likelihood of being risk averse is affected negatively by background variables such as high salary, high education, and high cognitive reflection ability. However, IQ scores are not significantly related to risk aversion; 3) The possibility of displaying a high degree of risk aversion increases with age; 4) The possibility of being loss averse decreases with increase in salary and age, and it seems no cognitive ability measure is correlated to loss aversion.

Are Smarter People Really Less Risk Averse?
Are Smarter People Really Less Risk Averse?

Author: Sergio Sousa

Publisher:

Published: 2010

Total Pages:

ISBN-13:

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Using hypothetical lottery choices to measure risk preferences, Frederick (2005) finds that higher cognitive ability is associated with less risk aversion. This paper documents, however, that when using an incentive compatible measure of risk preference, attitudes towards risk are not associated to cognitive ability as measured by Frederick's (2005) three-item cognitive reflection test. This is a new finding that adds weight to the claim that lack of proper financial incentives can sometimes be a source of bias. In addition, we show that this lack of association between risk preferences and cognitive ability is robust to using a broader measure of cognitive ability that takes into account both verbal and non-verbal reasoning skills. Our results suggest the possibility that whether cognitive ability relates to attitudes towards risk is sensitive to instruments used to measure both of them. -- cognitive ability ; risk preferences ; financial incentives ; cognitive reflection test

Risk Preferences of Children and Adolescents in Relation to Gender, Cognitive Skills, Soft Skills, and Executive Functions
Risk Preferences of Children and Adolescents in Relation to Gender, Cognitive Skills, Soft Skills, and Executive Functions

Author: James Andreoni

Publisher:

Published: 2019

Total Pages: 29

ISBN-13:

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We conduct experiments eliciting risk preferences with over 1,400 children and adolescents aged 3-15 years old. We complement our data with an assessment of cognitive and executive function skills. First, we find that adolescent girls display significantly greater risk aversion than adolescent boys. This pattern is not observed among young children, suggesting that the gender gap in risk preferences emerges in early adolescence. Second, we find that at all ages in our study, cognitive skills (specifically math ability) are positively associated with risk taking. Executive functions among children, and soft skills among adolescents, are negatively associated with risk taking. Third, we find that greater risk-tolerance is associated with higher likelihood of disciplinary referrals, which provides evidence that our task is equipped to measure a relevant behavioral outcome. For academics, our research provides a deeper understanding of the developmental origins of risk preferences and highlights the important role of cognitive and executive function skills to better understand the association between risk preferences and cognitive abilities over the studied age range.

Cognitive Imprecision and Small-Stakes Risk Aversion
Cognitive Imprecision and Small-Stakes Risk Aversion

Author: Mel Win Khaw

Publisher:

Published: 2018

Total Pages: 0

ISBN-13:

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Observed choices between risky lotteries are difficult to reconcile with expected utility maximization, both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth, as stressed by Rabin (2000), and because subjects' responses involve a random element. We propose a unified explanation for both anomalies, similar to the explanation given for related phenomena in the case of perceptual judgments: they result from judgments based on imprecise (and noisy) mental representations of the decision situation. In this model, risk aversion results from a sort of perceptual bias -- but one that represents an optimal decision rule, given the imprecision of the mental representation of the situation. We propose a quantitative model of the noisy mental representation of simple lotteries, based on other evidence regarding numerical cognition, and test its ability to explain the choice frequencies that we observe in a laboratory experiment. Our model is more consistent with the laboratory data than random versions of expected utility theory or prospect theory, using both in-sample and out-of-sample tests of model fit.

Can cognitive skills and risk aversion explain inconsistent choices?: an experiment
Can cognitive skills and risk aversion explain inconsistent choices?: an experiment

Author: Francisco Galarza

Publisher:

Published:

Total Pages:

ISBN-13:

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Estudia la coherencia de las preferencias de riesgo entre universitarios en un país en vías de desarrollo. El diseño permite obtener la coherencia a nivel individual, en el que cada sujeto selecciona sus opciones preferidas de dos diferentes, pero relacionadas tareas de obtención de riesgo. En la primera tarea, los sujetos eligen una opción entre seis alternativas, descartando así la inconsistencia. La segunda tarea, es una transformación de la primera, que está destinada a examinar si la elección en la primera tarea también se revela como preferida. Al usar estas opciones, se construye medidas de preferencias incoherentes y analiza su correlación con las habilidades cognitivas (medido según Frederick (2005) en Cognitive Reflection Test-CRT scores and students' GPAs) y las preferencias de riesgo. Se encontró que una puntuación CRT baja y un pobre rendimiento académico son, generalmente buenos predictores de decisiones inconsistentes. Los resultados son contradictorios en términos del papel de la aversión al riesgo.

Who is 'Behavioral'? Cognitive Ability and Anomalous Preferences
Who is 'Behavioral'? Cognitive Ability and Anomalous Preferences

Author: Daniel J. Benjamin

Publisher:

Published: 2008

Total Pages: 0

ISBN-13:

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In this paper, we ask whether variation in preference anomalies is related to variation in cognitive ability. Evidence from a new laboratory study of Chilean high school students shows that small-stakes risk aversion and short-run discounting are less common among those with higher standardized test scores, although anomalies persist even among the highest-scoring individuals. The relationship with test scores does not appear to result from differences in parental education or wealth. A laboratory experiment shows that reducing cognitive resources using a cognitive load manipulation tends to exacerbate small-stakes risk aversion, with similar but statistically weaker effects on short-run impatience. Explicit reasoning about choice seems to reduce the prevalence of these anomalies, especially among the less skilled. Survey evidence suggests that the role of cognitive ability may extend to adult behaviors that are related to small-stakes risk preference and short-run time preference.