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IQ, expectations, and choice

D‘Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael

Abstract:
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 in ation than other men. The in ation 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 in ation 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.

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Volltext §
DOI: 10.5445/IR/1000092483
Veröffentlicht am 21.03.2019
Coverbild
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht
Jahr 2019
Sprache Englisch
Identifikator ISSN: 2190-9806
urn:nbn:de:swb:90-924830
KITopen-ID: 1000092483
Verlag KIT, Karlsruhe
Umfang 40 S.
Serie Working paper series in economics ; 127
Schlagworte Behavioral Macroeconomics, Heterogeneous Beliefs, Limited Cognition, Expectations Formation, Household Finance
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