Cognitive abilities affect decision errors but not risk preferences: A meta-analysis

Abstract

When making risky decisions, people should evaluate the consequences and the chances of the outcome occurring. We examine the risk-preference hypothesis, which states that people’s cognitive abilities affect their evaluation of choice options and consequently their risk-taking behavior. We compared the risk-preference hypothesis against a parsimonious error hypothesis, which states that lower cognitive abilities increase decision errors. Increased decision errors can be misinterpreted as more risk-seeking behavior because in most risk-taking tasks, random choice behavior is often misclassified as risk-seeking behavior. We tested these two competing hypotheses against each other with a systematic literature review and a Bayesian meta-analysis summarizing the empirical correlations. Results based on 30 studies and 62 effect sizes revealed no credible association between cognitive abilities and risk aversion. Apparent correlations between cognitive abilities and risk aversion can be explained by biased risk-preference-elicitation tasks, where more errors are misinterpreted as specific risk preferences. In sum, the reported associations between cognitive abilities and risk preferences are spurious and mediated by a misinterpretation of erroneous choice behavior. This result also has general implications for any research area in which treatment effects, such as decreased cognitive attention or motivation, could increase decision errors and be misinterpreted as specific preference changes.