The impact of cognitive skills on investment decisions. An empirical assessment and policy suggestions

Lorenzo Esposito, lorenzo marrese

Risultato della ricerca: Working paper

Abstract

Results of behavioral economics pose a strong challenge to mainstream finance theory conclusions. We discuss, theoretically and empirically, the connections of cognitive skills, biases and financial decisions using the Cognitive Reflection Test (Frederick, 2005). In particular, we have chosen overconfidence, risk aversion, bandwagon effect, time preference and money illusion, among the biases most discussed in the literature. The experiment we conducted confirmed a role of the cognitive skills in determining the decision mechanism of the investor although not neatly, especially for more complex biases, such as money illusion. Finally, we expose policy alternatives, focusing on the role of financial education to tackle cognitive biases in finance and monetary policy.
Lingua originaleEnglish
EditoreDipartimento di Politica Economica
Numero di pagine43
ISBN (stampa)978-88-343-4822-2
Stato di pubblicazionePubblicato - 2021
Pubblicato esternamente

Keywords

  • financial education
  • cognitive biases

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