Occasional thoughts on diverse subjects

Smarter people more comfortable with risk?

By Dave Menendez
Friday, January 27, 2006, at 9:06 PM

Summary: An MIT study suggests that a certain kind of intelligence leads to greater comfort with risk.

Interesting New York Times article about how people evaluate risk and uncertainty. Consider this brief test:

  1. A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?

  2. If it takes five machines five minutes to make five widgets, how long would it take 100 machines to make 100 widgets?

  3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

A study by Shane Frederick of the Sloan School of Management at MIT suggests that performance on this test correlates to tolerance for risk. Those who score higher on the test are more willing to take risks, even where it may not be advantageous. They are also more likely to choose a large payout in the future over a smaller, immediate payout. The effects are not uniform across genders: high-scoring women are more patient than high-scoring men, but take risks at the level of low-scoring men. Low-scoring women are the least willing to gamble.

It’s hard to judge a study based on newspaper reports. In this case, there are hints that this study may not be as conclusive as it sounds.

Maybe, suggested Professor Frederick in the interview, “it’s because one study was done at University of Toledo”—where the mean score on his test was 0.57 out of a possible 3—“and one study was done at Princeton,” where the mean was 1.63. The test groups may not really be the same.

Mostly, I’m mentioning it because of the quiz, which I aced. (I almost got the first one wrong, but then I had second thoughts.)

(via Kevin Drum)