Itelligence and risk taking.

[TheArtist]

I think this article explains a lot of what we see on this forum. []


http://www.sciencedaily.com/releases/2007/07/070704144512.htm

Intelligent People Are More Patient In Financial Matters; Higher IQ Also Makes More Tolerant Of Risk



Science Daily — Assuming someone gave you the choice of 100 euros today or 150 euros in a year's time. Which sum would you take? Scientists at the University of Bonn and the Institute for the Study of Labour (Institut zur Zukunft der Arbeit, IZA) asked 1000 adults in Germany this question. At the same time they measured the cognitive abilities of the participants, using two different methods. The result was that intelligent people prefer to wait for a higher return, rather than going for the money now. This is the first time that this relationship between intelligence and patience in financial matters has been shown.

Furthermore, the willingness to run risks increases with higher intelligence

Scientists gave the test subjects 100 euros. The participants could put this amount straight into their pockets. However, they could also invest it for a year at a guaranteed fixed rate of interest. In this way the 100 euros would become, for example, 105, 120 or 150 euros. In an experiment the candidates were supposed to decide what the minimum amount would have to be in a year's time for it to be worth waiting longer for. The idea behind this was that the more impatient someone is in waiting for payment, the higher the incentive required must be in order for them to accept the 12-month waiting period. Using a similar experiment the scientists ascertained the willingness of the candidates to run risks. Apart from that the test persons completed two different intelligence tests. "The more intelligent the test subjects were, the more patient and tolerant of risk they were," is how the Bonn Professor of Economics, Dr. Armin Falk, sums the results up.

But is there really a direct relationship between cognitive abilities and certain personality traits? Or is the relation more complicated? It would also be conceivable that people with a low IQ earn less money and tend to choose the 100 euros because of financial worries. In conjunction with his colleagues Dr. Thomas Dohmen, Dr. Uwe Sunde and Dr. David Huffman at the IZA, Professor Falk was able to prove that the link between patience and cognitive abilities is even valid if the income factor is taken into account. "What's more, according to our analysis, other indirect factors of influence can be excluded as an explanation," Professor Falk emphasises.

Intelligent people are rewarded twice over

Instead, intelligence, patience and risk tolerance seem to be closely interconnected -- and probably for a good reason. In order to be able to assess a risk correctly or to have a successful strategy in the long term, it is necessary to be able to recognise how things are interconnected. "Anyone who does not have this ability may be better advised to follow the principle of 'A bird in the hand is worth two in the bush,'" Professor Falk says.

However, someone who is intelligent seems to be twice favoured, according to the results of the Bonn study. On the one hand, they can be more successful, due to their cognitive abilities, than their less intelligent contemporaries. On the other hand, they are generally more tolerant of risk and more patient -- two character traits which research shows contribute additionally to success at the workplace.

The original article can be found on the internet at: http://ftp.iza.org/dp2735.pdf

[rwarn17588]

Feh.

I think the concept of acceptable risk is more dependent on having all the information and scenarios provided than being simply intelligent. Most people of all intellects will make the proper decision if the information they need is laid out.

In other words: research, research, research.

[Wrinkle]

The prof is wrong about risk, but would seem to represent a common view (misconception) from the institutional sector.

Real risk cannot be evaluated the same way as two alternatives, as in some amount now or more later. Real risk involves true unknowns, like what will the interest rate be on September 1, 2015?

Intelligence has to do with the ability to logically reduce risks, not the ability to accept them. So, it only appears they may be more willing to accept risk, when in reality, they have deduced the risk out, or down to an acceptable minimal level.

Gambling is not knowing and doing it anyway. The ability to accept this type of risk probably has more to do with lack of intelligence.

Let's wait and see which it was on the City Hall deal.

[RecycleMichael]

"I used to be a heavy gambler. But now I just make mental bets. That's how I lost my mind."

Steve Allen

[Conan71]

Intelligent people are more patient in financial matters, eh?

What's that say about our city council, mayor, and county commissioners?[B)]

[TheArtist]

Patient in seeing the returns, but risk takers in going for a possible venture in hopes of a better future return.

I would say that entrepreneurs starting a business are patient risk takers. Hard work and even loss and sacrifice at first for a hoped for better reward in the future.

Even going to college would fit the bill.

[Wrinkle]

Going to college is not a risk venture, it's an investment.

Of course, the way the current college loan programs work and credit card promotions, it can easily turn into a risk/reward scenario.

[Friendly Bear]

quote:Originally posted by Conan71

Intelligent people are more patient in financial matters, eh?

What's that say about our city council, mayor, and county commissioners?[B)]

Conan:  There is a completely different Risk Paradign with Politicians.  

Reason:  They are only playing with OPM (Other Peoples Money).
And, they are really not held accountable in any serious way for waste and abuse.

[Conan71]

quote:Originally posted by Friendly Bear

quote:Originally posted by Conan71

Intelligent people are more patient in financial matters, eh?

What's that say about our city council, mayor, and county commissioners?[B)]

Conan:  There is a completely different Risk Paradign with Politicians.  

Reason:  They are only playing with OPM (Other Peoples Money).
And, they are really not held accountable in any serious way for waste and abuse.

OPM is the opium of politicians.

No, no serious recourse at all.  Once they are finally fired voted out or retire from office, they wind up with a cushy better-paying job elsewhere.