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Can cognitive skills and risk aversion explain inconsistent choices? An experiment

Author

Listed:
  • Hernán Bejarano

    (CIDE, Mexico; Chapman University, Orange, CA)

  • Francisco Galarza

    (Universidad del Pacífico)

Abstract

We study the consistency of risk preferences among undergraduate students in a developing country. Our design allow us to elicit consistency at the individual level in which each subject selects his or her most preferred lotteries under two different (but related) risk elicitation tasks. In the first task, subjects choose one lottery out of six alternatives, thus ruling out inconsistency. Our second task is a transformation of the first task into a multiple price-list lottery, intended to examine whether the choice in the first task is also revealed as preferred. Using these choices, we construct our measures of preferences inconsistency, and analyze their correlation with cognitive skills (as measured by Frederick (2005)'s Cognitive Reflection Test—CRT scores and students' GPAs) and risk preferences. We find that a low CRT score and a poor academic performance are, in general, good predictors of inconsistent choices. Results are mixed in terms of the role of risk aversion.

Suggested Citation

  • Hernán Bejarano & Francisco Galarza, 2016. "Can cognitive skills and risk aversion explain inconsistent choices? An experiment," Working Papers 16-03, Centro de Investigación, Universidad del Pacífico.
    • Handle: RePEc:pai:wpaper:16-03
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    References listed on IDEAS

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    Cited by:

    1. Gerardo Sabater-Grande & Nikolaos Georgantzís & Noemí Herranz-Zarzoso, 2023. "Goals and guesses as reference points: a field experiment on student performance," Theory and Decision, Springer, vol. 94(2), pages 249-274, February.
    2. Noemí Herranz-Zarzoso & Gerardo Sabater-Grande, 2020. "Monetary incentives and overconfidence in academic performance: An experimental study," Working Papers 2020/14, Economics Department, Universitat Jaume I, Castellón (Spain).

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    More about this item

    Keywords

    Inconsistent choices; risk aversion; cognitive skills; experimental economics;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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