Abstract:
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.
