IQ, Expectations, and Choice
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Title:
|
IQ, Expectations, and Choice |
Author:
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D'Acunto, Francesco
;
Hoang, Daniel
;
Paloviita, Maritta
;
Weber, Michael
|
Organization:
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Bank of Finland
|
Series:
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Bank of Finland Research Discussion Papers
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Series number:
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2/2019 |
Year of publication:
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2019 |
Publication date:
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18.1.2019 |
Published in:
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Revised version uploaded 30 September 2019. |
Pages:
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44 |
Subject (yso):
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odotukset; kyvykkyys; inflaatio; käyttäytyminen; valinta; kulutus; kognitiiviset taidot; kotitaloudet
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Keywords:
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inflaatio-odotukset; |
JEL:
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D12; D84; D91; E21; E31; E32; E52; E65
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Other keywords:
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Behavioral Macroeconomics; Heterogeneous Beliefs; Limited Cognition; Expectations Formation; Household Finance
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Abstract:
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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. |
Rights:
|
https://helda.helsinki.fi/bof/copyright
|
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