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

Psychonomic Bulletin & Review https://doi.org/10.3758/s13423-021-02053-1 THEORETICAL/REVIEW Cognitive abilities affect decision errors but not risk preferences: A meta-analysis Tehilla Mechera‑Ostrovsky1,2 · Steven Heinke2 · Sandra Andraszewicz3,4 · Jörg Rieskamp2 Accepted: 17 December 2021 © The Author(s) 2022 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. Keywords Value-based decisions · Risk preferences · Cognitive ability · Raven’s matrices · Cognitive Reflection Test · Multiple price list · Meta-analysis When facing risky decisions, such as selecting one of several treatments for a severe disease or choosing stock investments, people evaluate the potential consequences of their decisions. For example, a physician needs to consider possible treatment outcomes, such as successful recovery from a disease, side effects, or fatality. An investor analyses potential profits and losses from potential stock investments. These decisions rely on cognitive processes such as option valuation, action selection, outcome valuation, and potentially learning about the outcomes (Rangel et al., 2008). The cognitive processes strongly rely on cognitive abilities and individual preferences. A plethora of research has investigated the effect of cognitive abilities on decision making across various domains (for a review, see Dohmen et al., 2018). However, previous literature provides inconsistent evidence on whether cognitive abilities affect people’s risk preferences. Some studies have shown a negative correlation * Tehilla Mechera‑Ostrovsky 1 School of Psychology, University of New South Wales Sydney, Sydney 2052, Australia 2 Department of Psychology, Center for Economic Psychology, University of Basel, Basel, Switzerland 3 Chair of Cognitive Science, ETH Zurich, Zürich, Switzerland 4 Singapore‑ETH Centre, Future Resilient Systems, CREATE campus, 1 CREATE Way, #06‑01 CREATE Tower, Singapore 138602, Singapore 13 Vol.:(0123456789) Psychonomic Bulletin & Review between cognitive abilities and risk-averse preferences, while others have indicated a positive correlation. Thus, the mechanisms underlying the relation between one’s cognitive abilities, individual risk preferences, 1 and risk taking remain unclear. The risk-preference hypothesis states that there is a systematic link between people’s cognitive abilities and their risk preferences, because cognitive abilities affect the evaluation of risky options and, consequently risk-taking behavior (Frederick, 2005). Different rationales underlie this hypothesis. First, it could be that people with higher cognitive abilities are confident that they can evaluate the costs and benefits of risky decisions accurately and are therefore more willing to take risk and are more risk seeking. In contrast, people with lower cognitive abilities are less confident that they evaluate the cost and benefits of risky decisions accurately and fear that they make unreasonable choices, so that they are in general more risk averse. This leads to a general negative correlation between cognitive abilities and risk averse preferences. Second, it could be that people with higher cognitive abilities can evaluate choice options accurately according to their risk and rewards (i.e., variance and expected value), and decide consistently with their latent risk preferences. In contrast, people with lower cognitive abilities rely on less demanding heuristics, so that their risktaking behavior might not correspond with their latent risk preference but could be more risk averse or more risk loving depending on the used heuristic and the task characteristics. If their behavior is biased toward risk aversion, a negative correlation between cognitive abilities and the observed riskaverse behavior results. In contrast, if it is biased toward risk seekingness, a positive correlation result. In other words, depending on the heuristics used by people with lower cognitive abilities, one can expect positive or negative correlations between people’s cognitive abilities and the observed risk-taking behavior. However, the variability in correlations due to the use of different heuristics in tasks with identical characteristics should not correlate with the effect of these characteristics on random choice behavior, an alternative explanation to the possible variations in correlations, which we describe below. In other words, whether a task is biased 1 Past research has used similar terms, such as risk taking, risk preferences, risk appetite, or risk attitude when referring to people’s willingness to take risks. We consider people’s risk preferences as a latent cognitive construct. We will use the general term risk preferences when we refer to people’s risk-taking preferences and indicate the direction as risk averse or risk seeking. Furthermore, we use the term risk taking when referring to people’s observed behaviour, where increased risk taking refers to more observed risk-seeking behaviour and decreased risk taking refers to more observed risk-averse behaviour. Finally, for comparability, we use the correlation between cognitive abilities and risk aversion as our outcome variable, as most studies have reported results in terms of high or low risk aversion. 13 toward risk-averse behavior so that random choice behavior leads to a risk-averse classification should not affect the correlation due to the use of different heuristics. The alternative error hypothesis rejects the notion of a systematic link between people’s cogn (...truncated)