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Intelligence, Cognitive Reflection, and Decision Making

This is a MIT World video featuring Shane Frederick, professor at MIT Sloan School of Management. Shane talks about his research findings on risk-taking behavior and cognitive reflection.

Frederick found 3,000 plus subjects -- mostly university students across the U.S. – to answer his three CRT questions, as well as to respond to a survey on financial gambles and other risk-based decisions. The CRT, which he describes as functioning like an IQ test, tends to elicit impulsive, erroneous answers. Here’s one sample question: A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost? The intuitive answer is 10 cents. The correct answer is 5 cents.

Frederick discovered striking correlations between individuals scoring correctly on all three CRT questions, and their tendency to take financial gambles. For instance, almost a third of the high scorers preferred a 1% chance at $5,000 than a guaranteed $60.

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