COGNITIVE ABILITY AND ECONOMIC PREFERENCES IN LOW AND MIDDLE-INCOME COUNTRIES

Abstract

This paper studies the relationship between cognitive ability and economic preferences in low- and middle-income countries. For this purpose, we use data from the Skills Towards Employment and Productivity Survey (STEP) collected by the World Bank. Data come from survey questions and include nine developing countries with more than 23,000 observations in total. Results show that cognitive ability as measured by the results of reading literacy test has no association with individual’s risk and time preferences.  The study also finds, that in low- and middle-income countries, older individuals and those with more education and are less patient and household size may explain risk averseness.