Document Type
Working Paper
Publication Date
2015
College/Unit
Chambers College of Business and Economics
Document Number
15-26
Department/Program/Center
Economics
Abstract
Financial transactions sometimes occur in an environment where third-party enforcement is lacking. Behavioral explanations typically allude to the social preferences, where an individual’s utility is directly affected by another’s outcome, as the driver of the trusting investments and reciprocal returns. We hypothesize that, in part, these decisions are determined by an individual’s financial literacy. Experimental evidence is coupled with an innovative financial literacy assessment, which measures general competence, numeracy skills, and overconfidence in one’s knowledge. Results indicate that overconfidence is a significant determinant of behavior. Specifically, overconfident individuals make larger contributions in the investment game. We also document that there is an escalated effect in overconfident individuals who are also exhibit risk loving preferences.
Digital Commons Citation
McCannon, Bryan C.; Asaad, Colleen Tokar; and Wilson, Mark, "Financial Competence, Overconfidence, and Trusting Investments: Results from an Experiment" (2015). Economics Faculty Working Papers Series. 159.
https://researchrepository.wvu.edu/econ_working-papers/159