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Intelligent people more patient in financial matters
Higher IQ makes them more tolerant of risk
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. - U. Bonn
More information:
 The
original article can be found on the internet at:
http://ftp.iza.org/dp2735.pdf
Contact details:
Professor Armin Falk
University of Bonn
Email: falk@iza.org
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