Publication
Does financial education mitigate behavioral biases? Evidence from finance graduates
| Summary: | Being vulnerable to behavioral biases influences our financial decisions and can lead to sub-optimal financial judgment. Poor financial literacy can lead to the same result. The aim of this paper is to understand whether we can mitigate behavioral biases by ensuring a formal education in finance. This research studies the impact of both personal aspects and financial literacy level on the propensity to incur on behavioral biases. We also aim to assess if there is a positive correlation between behavioral biases. We create a survey to measure both financial literacy and behavioral biases. Everyone who has a master’s degree in finance or in a similar field or is attending one was eligible for the study. We find that household characteristics, such as income and number of members, play a significant role in predicting behavioral biases even within individuals with a formal financial education. However, we can affirm that the influence of personal aspects, as gender or age, on behavioral biases can be mitigated. We find no effect of the actual level of financial literacy on behavioral biases. The exception would be a high level of actual knowledge will mitigate overconfident behavior. We conduct further analysis for three additional measures of the level of financial literacy. In regard to the influence of demographic factors, we obtain comparable results using these additional variables. The household variables continue to be statistically relevant in predicting several biases. We continue to observe no apparent strong influence of financial literacy on behavioral biases as suggested in the literature. Finally, we noticed no differences in the findings when we included two new factors to the model that proxied education and experience. |
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| Main Authors: | Pereira, Maria Luísa Gomes |
| Subject: | Behavioral biases Financial literacy Demographic aspects Education Portugal Desvios comportamentais Literacia financeira Aspetos demográficos Educação Desvios comportamentais; Literacia financeira; Aspetos demográficos; Educação; Portugal |
| Year: | 2022 |
| Country: | Portugal |
| Document type: | master thesis |
| Access type: | open access |
| Associated institution: | Universidade de Lisboa |
| Language: | English |
| Origin: | Repositório da Universidade de Lisboa |
| Summary: | Being vulnerable to behavioral biases influences our financial decisions and can lead to sub-optimal financial judgment. Poor financial literacy can lead to the same result. The aim of this paper is to understand whether we can mitigate behavioral biases by ensuring a formal education in finance. This research studies the impact of both personal aspects and financial literacy level on the propensity to incur on behavioral biases. We also aim to assess if there is a positive correlation between behavioral biases. We create a survey to measure both financial literacy and behavioral biases. Everyone who has a master’s degree in finance or in a similar field or is attending one was eligible for the study. We find that household characteristics, such as income and number of members, play a significant role in predicting behavioral biases even within individuals with a formal financial education. However, we can affirm that the influence of personal aspects, as gender or age, on behavioral biases can be mitigated. We find no effect of the actual level of financial literacy on behavioral biases. The exception would be a high level of actual knowledge will mitigate overconfident behavior. We conduct further analysis for three additional measures of the level of financial literacy. In regard to the influence of demographic factors, we obtain comparable results using these additional variables. The household variables continue to be statistically relevant in predicting several biases. We continue to observe no apparent strong influence of financial literacy on behavioral biases as suggested in the literature. Finally, we noticed no differences in the findings when we included two new factors to the model that proxied education and experience. |
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