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Risk attitude and cognitive aging

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  • Bonsang, Eric
  • Dohmen, Thomas

Abstract

In this paper we investigate to what extent the decrease in the willingness to take risks with age can be traced to the cognitive aging process. We use data from the Survey of Health, Aging and Retirement in Europe (SHARE) that includes both a measure of financial risk preference and measures of cognitive ability for a representative sample of individuals aged 50+ in 11 European countries. The availability of a large set of variables in SHARE allows us to control for potential confounding factors that may be related to both cognitive skills and risk attitudes. Conditional on socio-demographic characteristics, about half of the age-related cross-sectional difference in willingness to take risks can be explained by a noisy measure of cognitive skills. Further analyses indicate this is a lower bound estimate due to attenuation bias resulting from measurement error in the measure of cognition.

Suggested Citation

  • Bonsang, Eric & Dohmen, Thomas, 2015. "Risk attitude and cognitive aging," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 112-126.
    • Handle: RePEc:eee:jeborg:v:112:y:2015:i:c:p:112-126
    DOI: 10.1016/j.jebo.2015.01.004
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    More about this item

    Keywords

    Cognition; Risk attitude; Aging; SHARE;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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