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Executive Functions and Financial Risk-Taking: The Crucial Role of Cognitive Flexibility and Mediating Effect of
Katarzyna Sekścińska1, Diana Jaworska1, Joanna Rudzińska-Wojciechowska2
1Faculty of Psychology, University of Warsaw, Warsaw, Poland.
Summary
Cognitive flexibility uniquely predicts financial risk-taking in investing and gambling. Risk perception mediates this link, while working memory impacts gambling risk, and inhibitory control shows no effect.
Area of Science:
- Cognitive Psychology
- Behavioral Economics
- Neuroscience
Background:
- Executive functions are vital for decision-making.
- The specific roles of executive functions in financial risk-taking are not well-understood.
- Understanding these links can inform financial behavior models.
Purpose of the Study:
- To investigate the relationship between executive functions (inhibitory control, working memory, cognitive flexibility) and financial risk-taking (investing, gambling).
- To examine the mediating role of risk perception in these relationships.
- To clarify the distinct contributions of different executive functions to financial decisions.
Main Methods:
- An online correlational study with 399 participants.
- Assessed executive functions using Go/No-Go (inhibitory control), Trail Making Test (cognitive flexibility), and 2-back task (working memory).
- Measured financial risk propensity, incentivised task performance, and risk perception.
Main Results:
- Cognitive flexibility positively predicted both investment and gambling risk-taking propensity and choice riskiness.
- Risk perception significantly mediated the link between cognitive flexibility and financial risk-taking.
- Working memory predicted gambling risk-taking, but inhibitory control did not significantly relate to financial risk-taking.
Conclusions:
- Cognitive flexibility is a key executive function influencing financial risk-taking across different domains.
- Risk perception plays a crucial mediating role in how cognitive flexibility translates to financial risk behavior.
- Future research should explore targeted interventions based on cognitive flexibility and risk perception for financial decision-making.
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