Kristopher Gerardi|Lorenz Göette|Stephan Meier
Numerical ability predicts mortgage default
Federal Reserve Bank of Atlanta|University of Lausanne|Columbia University
unprecedented levels us subprime mortgage defaults precipitated severe global financial crisis late 2008 plunging much industrialized world deep recession however fundamental reasons us mortgages defaulted spectacular rates remain largely unknown paper presents empirical evidence showing ability perform basic mathematical calculations negatively associated propensity default ones mortgage measure several aspects financial literacy cognitive ability survey subprime mortgage borrowers took loans 2006 2007 match objective detailed administrative data mortgage characteristics payment histories relationship numerical ability mortgage default robust controlling broad set sociodemographic variables driven aspects cognitive ability find support hypothesis numerical ability impacts mortgage outcomes choice mortgage contract rather results suggest individuals limited numerical ability default mortgage due behavior unrelated initial choice mortgage