Risk Aversion, Discipline & Marshmallow Experiments

There are two areas of academic research I have long found fascinating — Behavioral Economics, and Cognitive Psychology.

For investors, Behavioral Economics looks primarily at rationality: How rational or irrational are investors in what they do — their behavior, decision making, investing, etc. Cognitive Psychology, on the other hand, is concerned with our wetware — how we process information, what foibles inadequacies, and are prone to errors. The focus is our internal mental dynamics. Combine the two, and we end up with something like NeuroEconomics.

Which is what I was thinking about when I read this New Yorker piece on the ability of children to delay gratification as a marker of subsequent success.

The article refers to an experiment: Kids are offered a marshmallow — and then offered a deal: They could eat one marshmallow right away or, if willing to wait a few minutes, they could have two marshmallows. The results are quite surprising.

But it got me wondering: How much of what is described as risk aversion is merely another form of behavioral or cognitive issues — like self-discipline of gratification delay?

Food for thought . . .


DON’T! The secret of self-control.
Jonah Lehrer
New Yorker, MAY 18, 2009

See also:
Mischel’s Marshmallows
Radiolab, March 9, 2009

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