On the Relationship between Cognitive Ability and Risk Preference

TitleOn the Relationship between Cognitive Ability and Risk Preference
Publication TypeJournal Article
Year of Publication2018
AuthorsDohmen, T, Falk, A, Huffman, D, Sunde, U
JournalJournal of Economic Perspectives
Pagination115 - 134
Date PublishedJan-05-2018
ISSN Number0895-3309
KeywordsCognitive Ability, Decision making, Risk Taking

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.

Short TitleJournal of Economic Perspectives
Citation Key9596