Making financial decisions under risk and uncertainty has become part of everyday life. Traditional finance explores the objective side of risk, analysing the decisions made by perfectly rational individuals in efficient market conditions. Behavioural finance seeks to connect theory with...

We use a simple, three-item test for cognitive abilities to investigate whether established behavioral biases that play a prominent role in behavioral economics and finance are related to cognitive abilities. We find that higher test scores on the Cognitive Reflection Test of Frederick (2005)...