Open AccessDo Underlying Risk Preferences explain Individuals’ Cognitive Ability?⁕ Evidence from a Sample of Pakistani Students
Author(s) -
Mariam Raheem,
Ain ul Momina
Publication year - 2021
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2021.v26.i1.a4
Subject(s) - inference , cognition , sample (material) , psychology , causal inference , cognitive psychology , econometrics , test (biology) , function (biology) , social psychology , behavioral economics , economics , computer science , microeconomics , artificial intelligence , paleontology , chemistry , chromatography , neuroscience , evolutionary biology , biology
Emerging research in empirical economics posits a question on the relation between underlying risk preferences and reflective cognitive ability. In an experimental setting, a preliminary sample of 260 participants undergo a series of incentivized choice experiments to elicit risk preferences and a Cognitive Reflection Test (CRT) to obtain estimates of their reflective ability. We sidestep potential biases by using a Fechner error specification along with a contextualized version of the utility function. Individuals who are more likely to avoid risky outcomes have significantly lower scores on the CRT. The analysis validates a prominent relationship spanning the economics and psychology literature and suggests a potential direction of causal inference for future research.