DO SMART PEOPLE PREFER TO CONSUME? THE ROLE OF COGNITIVE ABILITIES IN HOUSEHOLD CONSUMPTION

Abstract

Extant research has established that psychological factors such as risk attitude and peer effect are important antecedents of household consumption. In this paper, we investigate whether and to what extent cognitive ability affects household consumption expenditure. Using survey data in 2018 from the China Family Panel Studies (CFPS), we find that cognitive ability of the head of the household is positively related to overall consumption and non-durable consumption, i.e., smart people in China are more willing to consume. Our results are robust to controlling for level of education and accounting for potential endogeneity issues. In addition, the positive relationship between cognitive ability and household consumption is stronger for medium-income, elderly, urban and male-headed households. Moreover, wealth, information and social network play important mediating roles in the positive relationship between cognitive ability and household consumption. Overall, our study implies that broadening investment and consumption channels and enhancing information accessibility in the long term are important in stimulating household consumption.