Recall Performance, Beliefs and Behavior

The US Health and Retirement Study measures recall performance (RP), the ability to recall words from a list, a standard memory measure in psychology. Higher RP people are more optimistic about stock returns, their home’s price, and their survival. We hypothesize that RP captures lower interference in a general-purpose recall technology. Accordingly, beliefs of higher RP people in each domain are more sensitive to domain-specific experiences and cues, but also to irrelevant yet similar non-domain specific experiences. Higher sensitivity explains the optimism-gap and why higher RP people are not necessarily more accurate. It also predicts investment, housing, and retirement choices.