Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240501 
Year of Publication: 
2020
Series/Report no.: 
IFN Working Paper No. 1358
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
Recent experimental evidence suggests that noisy behavior correlates strongly with personal characteristics. Since decision noise leads to bias in most elicitation tasks, there is a risk of falsely interpreting noise-driven relationships as preference driven. This puts previous studies that found a negative relation between personality measures and risk aversion into perspective and in particular raises the question of how to achieve robust inference in this domain. This paper shows, by way of an economic experiment with subjects from all walks of life, that using structural estimation that models heterogeneity of noise in combination with a balanced design allows us to mitigate the bias problem. Our estimations show that cognitive ability is related to noisy behavior rather than risk preferences. We also find age and education to be strongly related to noise, but the personality characteristics obtained using the Big Five inventory are less related to noise and more robustly correlated to risk preferences.
Subjects: 
Risk preference
Cognitive ability
Experiment
Noise
JEL: 
C81
C91
D12
D81
Document Type: 
Working Paper

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