The influence of number line estimation precision and numeracy on risky financial decision making

Abstract

This study examined whether different aspects of mathematical proficiency influence one's ability to make adaptive financial decisions. Numeracy refers to the ability to process numerical and probabilistic information and is commonly reported as an important factor which contributes to financial decision-making ability. The precision of mental number representation (MNR), measured with the number line estimation (NLE) task has been reported to be another critical factor. This study aimed to examine the contribution of these mathematical proficiencies while controlling for the influence of fluid intelligence, math anxiety and personality factors. In our decision-making task, participants chose between two options offering probabilistic monetary gain or loss. Sensitivity to expected value was measured as an index for the ability to discriminate between optimal versus suboptimal options. Partial correlation and hierarchical regression analyses revealed that NLE precision better explained EV sensitivity compared to numeracy, after controlling for all covariates. These results suggest that individuals with more precise MNR are capable of making more rational financial decisions. We also propose that the measurement of numeracy, which is commonly used interchangeably with general mathematical proficiency, should include more diverse aspects of mathematical cognition including basic understanding of number magnitude. © 2018 International Union of Psychological Science.