Experimental Economics

Experimental Economics - administering two different tests...

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Alex Jee asj2t@virginia.edu Are Risk Aversion and Impatience Related to Cognitive Ability? By Thomas Dohmen, Armin Falk, David Huffman, Uwe Sunde Brief Summary by Alex Jee (asj2t) In this study conducted in Germany by four researchers, the aim was to find whether cognitive ability was in any way related to the behaviors of risk aversion and impatience. The study of cognitive ability is significant as it is a “fundamental determinant of decision-making in economic models” (Dohmen, Falk, Huffman, Sunde 1). In order to study it’s relationship with risk aversion and impatience, a sample of 1000 random adults from Germany were asked to participate in a paid study. Measures of risk aversion were measured by the subjects’ choices over real-stake lotteries, while impatience was measured by subjects making tradeoffs between immediate payment and holding off for a year. Cognitive ability was then measured by
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Unformatted text preview: administering two different tests based on a different sub-module of popular IQ tests. The main finding was that cognitive ability was indeed related to risk aversion and impatience such that people with higher cognitive ability are significantly more willing to take risks, and are significantly more patient (Dohmen, Falk, Huffman, Sunde 3). The study underwent vigorous correction to make sure that all variables were controlled and results were not skewed due to background or socio-economic status or other factors. The results of this study can have an impact on other studies that are testing for similar things and also, can help us learn a little more about what drives consumers decisions and what makes some people display risk averse behaviors. IZA DP No. 2735 Discussion Paper No. 2735 April 2007 (updated June 2007 old version available at ftp://ftp.iza.org/dps/dp2735_ov.pdf )...
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