Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212436
Authors: 
D'Acunto, Francesco
Hoang, Daniel
Paloviita, Maritta
Weber, Michael
Year of Publication: 
2019
Series/Report no.: 
Bank of Finland Research Discussion Papers 2/2019
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 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: 
D12
D84
D91
E21
E31
E32
E52
E65
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-258-7
Document Type: 
Working Paper

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