Exponential Growth Bias and Financial Literacy

Johan Almenberg and Christer Gerdes ()

No 5814, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: The tendency to underestimate the future value of a variable growing at a constant rate, an example of exponential growth bias, has been linked to household financial decision making. We show that exponential growth bias and standard measures of financial literacy are negatively correlated in a representative sample of Swedish adults. Since financial literacy is linked to household decision making, our results indicate that examining the relationship between exponential growth bias and household finance without adequate controls for financial literacy may generate biased results.

Keywords: exponential growth bias; financial literacy; household finance (search for similar items in EconPapers)
JEL-codes: D12 D14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg
Date: 2011-06
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