Cognitive ageing and risk attitude

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.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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