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Cutting Through the Fog: Financial Literacy and the Subjective Value of Financial Assets

Marco Nieddu () and Lorenzo Pandolfi

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: 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.

Keywords: financial literacy; experimental finance; financial market participation; ambiguity aversion. (search for similar items in EconPapers)
JEL-codes: D14 D81 G11 G40 I22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-fle and nep-upt
Date: 2018-04-22
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:497

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