Are Risk Aversion and Impatience Related to Cognitive Ability?

TLDR

The study investigates whether cognitive ability is linked to risk aversion and impatience in a representative sample of about 1,000 German adults. It employs monetary‑incentive choice experiments to gauge risk aversion and annual‑horizon impatience, administers two standard cognitive tests, and performs robustness checks to rule out confounds. Lower cognitive ability is significantly associated with higher risk aversion and greater impatience, a relationship that persists after controlling for demographics, education, income, and credit constraints.

Abstract

This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of roughly 1,000 German adults. Subjects participate in choice experiments with monetary incentives measuring risk aversion, and impatience over an annual horizon, and conduct two different, widely used, tests of cognitive ability. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, education, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.