Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271515 
Year of Publication: 
2023
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 9/2023
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Unique administrative data on a representative population's cognitive abilities, spending, and financials reveal that consumers at or below median cognitive abilities barely react when their incentives to spend or borrow change, even if they earn high incomes and are financially unconstrained and conditional on formal education, personal and macroeconomic expectations, and rich demographics. Matched survey-based data on this population show that non-responsive consumers fail to grasp how the incentives to consume, save, and borrow change over time. Cognitive constraints limit the effectiveness of policies targeting household consumption and debt and might lead to regressive redistribution from low- to high-cognitive-ability consumers.
Subjects: 
Behavioral Economics
Limited Cognition
Consumption
Borrowing
Heterogeneous Agents
Redistribution
Inequality
JEL: 
D12
D91
E21
E52
G41
G51
ISBN: 
978-952-323-438-3
Document Type: 
Working Paper

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