Here.
We examine the impact of financial literacy on investors’ subjective valuation of financial assets. In a laboratory experiment, we study how the certainty equivalent of a risky lottery changes when varying the framing of the lottery – a financial asset vs. a coin toss – and participants’ level of financial literacy – via teaching basic financial notions. Enhancing financial literacy improves the understanding of the lottery’s structure and increases its certainty equivalent, thus offsetting the negative effects of the financial framing. Our results – which can be rationalized by ambiguity aversion – highlight the importance of promoting financial education to stimulate households’ financial market participation.
From:
Marco Nieddu
Università di Cagliari
Lorenzo Pandolfi
Università di Napoli Federico II
We examine the impact of financial literacy on investors’ subjective valuation of financial assets. In a laboratory experiment, we study how the certainty equivalent of a risky lottery changes when varying the framing of the lottery – a financial asset vs. a coin toss – and participants’ level of financial literacy – via teaching basic financial notions. Enhancing financial literacy improves the understanding of the lottery’s structure and increases its certainty equivalent, thus offsetting the negative effects of the financial framing. Our results – which can be rationalized by ambiguity aversion – highlight the importance of promoting financial education to stimulate households’ financial market participation.
From:
Marco Nieddu
Università di Cagliari
Lorenzo Pandolfi
Università di Napoli Federico II
