On the Relationship between Cognitive Ability and Risk Preference

Thomas Dohmen*, Armin Falk, David Huffman, Uwe Sunde

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

48 Citations (Web of Science)

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.
Original languageEnglish
Pages (from-to)115-134
Number of pages20
JournalJournal of Economic Perspectives
Volume32
Issue number2
DOIs
Publication statusPublished - 2018

JEL classifications

  • d11 - Consumer Economics: Theory
  • d12 - Consumer Economics: Empirical Analysis
  • d81 - Criteria for Decision-Making under Risk and Uncertainty
  • g22 - "Insurance; Insurance Companies"

Keywords

  • DECISION-MAKING
  • AGE-DIFFERENCES
  • FINANCIAL LITERACY
  • LIFE-SPAN
  • BEHAVIOR
  • UNCERTAINTY
  • PERSONALITY
  • PERSPECTIVE
  • ATTITUDES
  • AVERSION

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