Does financial literacy alleviate risk attitude and risk behavior inconsistency?

Aslihan Gizem Korkmaz, Zhichao Yin, Pengpeng Yue and Haigang Zhou

International Review of Economics & Finance, 2021, vol. 74, issue C, 293-310

Abstract: This study investigates the relationship between risk preference and risk behavior using the China Household Finance Survey (CHFS). Empirical results suggest the existence of an inconsistency between risk preference and risk behavior; however, financial literacy affects this inconsistency. Financial literacy works through two channels. First, it can decrease the inconsistency between risk propensity and risk behavior. Second, it can encourage risk-taking behavior. The results also show that the heterogeneity in the risk sensitivity of households leads to different outcomes. Namely, financial literacy increases the inconsistency for the risk-averse and decreases it for the risk-seeking by increasing risk-taking behavior.

Keywords: Financial literacy; Risk preference; Risk behavior; Risk propensity; Inconsistency (search for similar items in EconPapers)
JEL-codes: G41 H31 O53 R20 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:74:y:2021:i:c:p:293-310

DOI: 10.1016/j.iref.2021.03.002

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