Risk attitude and cognitive aging

E.D.M. Bonsang, T.J. Dohmen

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

In this paper we investigate to what extent the decrease in the willingness to take risks with age can be traced to the cognitive aging process. We use data from the Survey of Health, Aging and Retirement in Europe (SHARE) that includes both a measure of financial risk preference and measures of cognitive ability for a representative sample of individuals aged 50+ in 11 European countries. The availability of a large set of variables in SHARE allows us to control for potential confounding factors that may be related to both cognitive skills and risk attitudes. Conditional on socio-demographic characteristics, about half of the age-related cross-sectional difference in willingness to take risks can be explained by a noisy measure of cognitive skills. Further analyses indicate this is a lower bound estimate due to attenuation bias resulting from measurement error in the measure of cognition.
Original languageEnglish
Pages (from-to)112-126
JournalJournal of Economic Behavior & Organization
Volume112
DOIs
Publication statusPublished - 1 Jan 2015

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