IQ, Expectations, and Choice
Maritta Paloviita () and
Michael Weber ()
No 2/2019, Research Discussion Papers from Bank of Finland
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.
JEL-codes: D12 D84 D91 E21 E31 E32 E52 E65 (search for similar items in EconPapers)
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Working Paper: IQ, Expectations, and Choice (2019)
Working Paper: IQ, expectations, and choice (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2019_002
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