Executive Functions and Financial Risk‐Taking: The Crucial Role of Cognitive Flexibility and Mediating Effect of Risk‐Perception

ABSTRACT Executive functions are crucial for decision‐making, yet their role in financial risk‐taking remains unclear. This study explores the relationship of three executive functions—inhibitory control, working memory, and cognitive flexibility—with two areas of financial risk‐taking: investing and gambling. Additionally, it examines how risk perception mediates these relationships. An online correlational study was conducted with 399 participants, utilising three measures of executive functions: the Go/No‐Go task to assess inhibitory control, the Trail Making Test for cognitive flexibility, and the 2‐back task for working memory. Financial measures evaluated participants' general risk propensity and performance in incentivised tasks across both subdomains, alongside measures of risk perception. The findings indicate that cognitive flexibility is the only significant positive predictor of both investment and gambling risk‐taking propensity, as well as the riskiness of choices in both domains. Furthermore, the results suggest that risk perception mediates the relationship between cognitive flexibility and financial risk‐taking. While working memory was identified as a significant predictor only in the context of gambling risk‐taking, inhibitory control did not appear to play a role in financial risk‐taking at all.