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Cognitive Abilities and Household Financial Decision Making

2013; American Economic Association; Volume: 5; Issue: 1 Linguagem: Inglês

10.1257/app.5.1.193

1945-7782

Sumit Agarwal, Bhashkar Mazumder,

Housing Market and Economics

We analyze the effects of cognitive abilities on two examples of consumer financial decisions where suboptimal behavior is well defined. The first example features the optimal use of credit cards for convenience transactions after a balance transfer and the second involves a financial mistake on a home equity loan application. We find that consumers with higher overall test scores, and specifically those with higher math scores, are substantially less likely to make a financial mistake. These mistakes are generally not associated with nonmath test scores. (JEL D14, G21)