This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Journal: Applied Economics
  4. January 2013
  5. Cognitive Abilities and Household Financial Decision Making

Cognitive Abilities and Household Financial Decision Making

  • Sumit Agarwal
  • Bhashkar Mazumder
American Economic Journal: Applied Economics
vol. 5, no. 1, January 2013
(pp. 193-207)
Download Full Text PDF

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)

Citation

Agarwal, Sumit, and Bhashkar Mazumder. 2013. "Cognitive Abilities and Household Financial Decision Making." American Economic Journal: Applied Economics, 5 (1): 193-207. DOI: 10.1257/app.5.1.193

Additional Materials

JEL Classification

  • D14 Personal Finance
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
There are no comments for this article.
Login to Comment