Cognitive ability and risk preferences in a developing nation: Findings from the field

Abstract

We find a strong positive relationship between risk tolerance and cognitive ability which becomes stronger as adherence to the generalized axiom of revealed preference (a proxy for rationality) increases. In contrast to typical studies of this sort, our results are taken from a field study of individuals at the very bottom of the income distribution in a developing nation. Our results for some of the poorest in the world support a link between cognitive ability and risk preferences. We merge this with findings from developed nations and argue that our overall findings suggest a stable relationship for the human population as a whole irrespective of socio-economic status.