New Research Reveals Why Smarter People Make Better Decisions

Researchers at the University of Bath’s School of Management have found that people with higher IQs tend to make more accurate and realistic predictions about future events, which in turn supports stronger decision-making and can contribute to better outcomes in life, the Journal of Personality and Social Psychology reported.

The study reveals that individuals with lower IQ scores (those in the bottom 2.5% of the population) make prediction errors that are more than twice as large as those made by individuals with high IQs (the top 2.5%).

The study drew on data from the English Longitudinal Study of Ageing (ELSA), a nationally representative sample of individuals over the age of 50 in England, to examine how well people could estimate their own life expectancy.

Participants were asked to estimate their chances of living to specific ages, and their responses were compared to official probabilities from the Office for National Statistics life tables (a demographic resource used to evaluate mortality rates and calculate expected lifespan at various ages). The researchers accounted for factors such as health status, lifestyle habits, and inherited longevity.

Chris Dawson, Professor of Economics and Behavioural Science at the University of Bath, analyzed participants’ results on multiple cognitive assessments along with genetic indicators associated with intelligence and academic achievement. His findings show that individuals with higher cognitive ability are generally more accurate in judging uncertain outcomes and better at evaluating probability.

Individuals with a higher IQ are significantly better at forecasting, making fewer errors (both positive and negative), and showing more consistent judgment compared to those with a lower IQ.

“Accurately assessing the probability of good and bad things happening to us is central to good decision-making,” said Professor Dawson. “Almost all decisions we make, whether it’s starting a business, investing, crossing the road, choosing who to date, all require probabilistic assessments.

“IQ is already known to predict health, wealth, income, occupational status, and educational attainment and this research highlights one possible channel through which people with a lower IQ do worse on all these outcomes.”

Professor Dawson suggests that explicitly stating probability estimates on information relating to health and finance, for example, rather than relying on individuals to do their own calculations, could help people prone to forecasting errors make more informed, accurate decisions.

“The study shows that certain genetic traits linked to intelligence and education are associated with more accurate predictions, suggesting that lower cognitive ability may causally contribute to the formation of more biased assessments,” said Professor Dawson. “Probability estimation is the most important aspect of decision-making and people who struggle with this are at a distinct disadvantage.

“Expectations about the future shape how households make critical decisions – like how much to save, when to retire, or whether to invest. Poorly calibrated expectations can lead to bad financial decisions, and reduced economic welfare, which can adversely affect national growth.”

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