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Cognitive Abilities and Household Financial Decision Making

Author

Listed:
  • Sumit Agarwal
  • Bhashkar Mazumder

Abstract

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)

Suggested Citation

  • Sumit Agarwal & Bhashkar Mazumder, 2013. "Cognitive Abilities and Household Financial Decision Making," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 193-207, January.
    • Handle: RePEc:aea:aejapp:v:5:y:2013:i:1:p:193-207
    Note: DOI: 10.1257/app.5.1.193
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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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    1. Cognitive Abilities and Household Financial Decision Making (American Economic Journal: Applied Economics 2013) in ReplicationWiki

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