IQ, Expectations, and Choice
D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael (18.01.2019)
Numero
2/2019Julkaisija
Bank of Finland
2019
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201901181038Tiivistelmä
We use administrative and survey-based micro data to study the relationship between cognitive abilities (IQ), the formation of economic expectations, and the choices of a representative male population. Men above the median IQ (high-IQ men) display 50% lower forecast errors for inflation than other men. The inflation expectations and perceptions of high-IQ men, but not others, are positively correlated over time. High-IQ men are also less likely to round and to forecast implausible values. In terms of choice, only high-IQ men increase their propensity to consume when expecting higher inflation as the consumer Euler equation prescribes. High-IQ men are also forward-looking - they are more likely to save for retirement conditional on saving. Education levels, income, socio-economic status, and employment status, although important, do not explain the variation in expectations and choice by IQ. Our results have implications for heterogeneous-beliefs models of household consumption, saving, and investment.
Julkaisuhuomautus
A revised version published on 30 September 2019.