The inflation expectations & perceptions of high-IQ men, but not others, are positively correlated over time; are also less likely to round and to forecast implausible values; & more likely to save for retirement

IQ, Expectations, and Choice. Francesco D’Acunto, Daniel Hoang, Maritta Paloviita, Michael Weber. NBER Working Paper No. 25496, January 2019. https://www.nber.org/papers/w25496

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.