Risk Preferences, Cognitive Ability and Personality: Evidence from a Large-scale Experiment

Risk aversion is the reluctance of a subject who value a certain gain higher than a risky gain, when both have the same expected value, and loss aversion refers to the tendency for a subject dislike a loss more than they favor a gain of the same expected value. This book investigates whether Danes are in general risk and loss averse, and test whether risk and loss aversion are related to cognitive ability, certain personality traits, and some demographics. Key findings: 1) Risk and loss aversion is a realistic characterization of average subjects; 2) The likelihood of being risk averse is affected negatively by background variables such as high salary, high education, and high cognitive reflection ability. However, IQ scores are not significantly related to risk aversion; 3) The possibility of displaying a high degree of risk aversion increases with age; 4) The possibility of being loss averse decreases with increase in salary and age, and it seems no cognitive ability measure is correlated to loss aversion.