WHICH RISK ATTITUDE COMPONENTS ARE RELATED TO INTELLIGENCE?

Prospect theory explained the violations of traditional theories of choice under risk and it provided more behavioural foundations showing that the evaluation of probabilities could be subjective along with outcomes. Probability weighting consists of two components: likelihood insensitivity and pessimism. The two-system theory suggested a plausible mechanism of how cognitive limitations may influence people’s understanding of probabilities and therefore on the overweighting of rare events. This study conducted a laboratory experiment to investigate the effect of, and the interaction between cognitive ability and experience on probability weighting. Among the 32 participants who were highly educated and young with a small range of age, cognitive ability and direct experience from sampling were both found to be negatively correlated with likelihood insensitivity. Pessimism was found to be influenced by experience although the direction was not clear. As for the interaction, cognitive ability affected the willingness to sample and how the participants learned from the procedure of sampling to moderate their likelihood insensitivity and pessimism levels. Compared to previous studies, this research involved a model of probability weighting to study the influence of both cognitive ability and experience, and investigated the complex interaction between them. Suggestions of further investigation and possible applications on paternalistic policies are discussed.