Recall Fluency, Beliefs and Behavior

The US Health and Retirement Study collects data on participants’ recall fluency (RF), their ability to recall words from a list, a standard measure of memory used by psychologists. Controlling for multiple demographic characteristics as well as IQ, people with a higher RF are more optimistic about stock returns, the price of their homes, and their life expectancy. We derive the predictions of a standard memory model and find that, consistent with them, the beliefs of higher RF people about each target domain are more sensitive to cues, to experiences in that domain, but also to irrelevant experiences in other domains, especially those similar to the target. These effects, in turn, carry to investment and retirement choices. RF emerges as an economically relevant personal trait.