With a novel experimental design we investigate whether risk perception, return expectations, and investment propensity are influenced by the scale of the vertical axis in charts. We explore this for two presentation formats, namely return charts and price charts, where we depict low- and high-volatility assets with distinct trends. We find that varying the scale strongly affects people’s risk perception, as a narrower scale of the vertical axis leads to significantly higher perceived riskiness of an asset even if the underlying volatility is the same. Furthermore, past returns predict future return expectations almost perfectly. In our setting perceived profitability was considered more important than perceived riskiness when making investment choices. Overall we show that adapting the scale of a chart makes it easier to recognize yearly return variations within a single security, but at the same time makes it harder to identify differences between dissimilar securities. This is something regulators should be aware of and take into account in the rules they set.

Expectations of future returns are pivotal for investors’ trading decisions, and are therefore an important determinant of the evolution of actual returns. Evidence from individual choice experiments with exogenously given time series of returns suggests that subjects’ return forecasts are substantially affected by how they are elicited and by the format in which subjects receive information about past asset performance. In order to understand the impact of these effects found at the individual level on market dynamics, we consider a learning to forecast experiment where prices and returns are endogenously determined and depend directly upon subjects’ forecasts. We vary both the variable (prices or returns) subjects observe and the variable (prices or returns) they have to forecast, with the same underlying data generating process for each treatment. Although there is no significant effect of the presentation format of past information, we do find that markets are significantly more unstable when subjects have to forecast returns instead of prices. Our results therefore show that the elicitation format may exacerbate, or even create, bubbles and crashes in financial markets.

We study factors influencing individuals’ decisions to purchase Citibank stock during the 1920s. Familiarity was an important positive influence (measured outside New York by branch presence, and within New York, by network connections to existing owners). Within New York, wealth, knowledge, and one's influence within the New York City Business network also increased the probability of becoming a Citibank shareholder. The role of some network influences, like other identifiable influences, became less important during the price boom of the late 1920s, perhaps reflecting the rising importance of other means of increasing familiarity during the price boom (i.e. media coverage).

We replicate Meissner (Exp Econ 19:281–298, 2016), where debt aversion was reported for the first time in an intertemporal consumption and saving problem. While Meissner (2016) uses a German sample, our participants are US undergraduate students. All of the original study’s main findings replicate with similar effect sizes. Additionally, we extend the original analysis by introducing a new individual index of debt aversion, which we use to compare debt aversion across countries. Interestingly, we find no significant differences in debt aversion between the original German and the new US sample. We then test whether debt aversion correlates with individual characteristics such as gender, cognitive reflection ability, and risk aversion. Overall, this paper confirms the importance of debt aversion in intertemporal consumption and saving problems and validates the approach of Meissner (2016).

A crucial first step in helping consumers improve their financial lives is understanding their financial circumstances and well-being. The Financial Well-Being (FWB) scale measures a consumer’s subjective well-being related to aspects of their financial circumstances. It is available in standard-length (10-item) and abbreviated (5-item) versions, but no research has compared how completing either version may alter consumers’ responses. Notably, the 5-item scale includes a higher share of reverse-coded (i.e., negatively framed) items. We hypothesize that the difference in item framing between scale versions influences participants’ feelings about their financial situation, predicting that completing the 5-item FWB scale will result in more negative responses compared to completing the 10-item FWB scale. To test this hypothesis, we implement a randomized survey experiment using the Understanding America Study. In our experiment with nearly 6,000 participants, we find that completing the 5-item versus the 10-item FWB scale reduces FWB scores (average decline in the 5-item FWB score of 0.9 points, 95% CI [–1.552, –0.249]), and increases the share with a “low” 5-item FWB score by 5.0 percentage points, 95% CI [0.028, 0.071]), responses to individual scale items, and self-rated FWB. This pattern is strongest among lower-income respondents (average decline in FWB score of 2.3 points, 95% CI [–3.385, –1.171] and increases the share with a “low” 5-item FWB score by 8.1 percentage points, 95% CI [0.041, 0.121]). These findings highlight that FWB scale choice can have unexpected consequences. We discuss the implications for research on FWB and on the measurement of well-being more broadly.

We test the effectiveness of an online interactive pension dashboard in improving pension funds participants' ability to make adequate pension decisions in terms of pension preparation, knowledge, self-efficacy, expectations, and intention-to-act. In a randomized survey experiment, treated participants of two pension funds receive an encouragement to visit an online pension dashboard. Treated individuals have more pension knowledge and an increased self-efficacy in the pension domain, especially so for females. The dashboard does not have a significant impact on the pension preparation or the errors in forecasts of pension income nor does it impact the willingness to act if there is a need to do so.

This study investigates the impacts of behavioral finance on stock market volatility. The primary aims are to explain the reasons behind changes in the S&P 500 price within the context of behavioral finance and to analyze investor behavior in response to these changes. To achieve this, the research employs time-series analysis over a 10-year period, focusing on the S&P 500, real interest rates, consumer confidence, market volatility and credit default swaps while considering the effects of behavioral biases. The findings reveal several significant correlations: rising real interest rates negatively affect stocks due to loss aversion and sentiment. Conversely, higher consumer confidence tends to positively influence the stock market, driven by herding behavior and optimism. Additionally, market volatility shows a negative correlation with the S&P 500, influenced by risk aversion, recency bias and herding behavior. Moreover, an increase in credit default swap rates leads to stock market declines, primarily influenced by risk perception, loss aversion and herding behavior.

This study examines the interest in different pension payout schemes when full annuitization is the default. We focus on three possible pension payout schemes: a flat-rate annuity, a high/low annuity-based profile, and a partial lump sum at retirement with a lower flat-rate annuity after that. We make use of a vignette study and find substantial interest in each of the three payout schemes. Interest in the lump sum scheme increases when a higher percentage can be taken out as a lump sum or when interest rates or replacement rates are lower. Interest in a high/low annuity-based profile increases when the high annuity is valid for a shorter period.

In this paper, we examine financial literacy and financial resilience in Italy. We show that financial literacy is particularly low among the young, women, and the less educated. We also highlight regional differences in financial knowledge, with individuals in Southern Italy performing worse. We find that the lack of financial literacy increases the probability of being unable to face financial shocks and leads to an overaccumulation of debt. Hence, our results support the hypothesis that financial literacy can be considered an enabling factor for financial resilience.

Financial literacy is a dangerous illusion. The article builds on existing critiques, notably the work of Lauren Willis, to show that the discourse of financial literacy education raises fundamental epistemological issues about the nature of financial markets and financial behaviour. The difficulties of achieving financial literacy are ill conceived simply as the outcomes of market imperfections. Instead, structural inequalities, financial reform, and the nature of financial assets preclude consumers from achieving adequate levels of financial competence and the claim that they can do so diverts attention from the causes of unequal economic outcomes.

We examine whether an individual's inability to save in the last 12 months affects the extent to which they are concerned about their future financial security and their propensity to plan for retirement. We use an original survey based upon representative samples of working individuals in 16 countries. We show that individuals who were unable to save over the 12-month period prior to the survey are less likely to consider well-being in retirement as their major financial concern. They are also less likely to invest in supplementary pension funds than those who were able to accumulate savings. We provide evidence that these findings are robust under several specifications and are mediated by respondents' perceived income prospects and assessment of their current financial situations.

The “Fear of Missing Out” or FoMO has become an accepted motivator of behaviours extending from the purchase of limited-edition sneaker brands to social media use and cryptocurrency investment. As a motivator of individual financial behaviours, such as cryptocurrency and stock investment, it is unclear how FoMO relates to consumer financial literacy and other consumer traits, including risk tolerance and personality. We propose, and assess, a model of reported investment behaviour and investment behaviour intention. We find a larger association between FoMO and crypto ownership, both current and intended, compared with stocks. FoMO has a small association with current stock ownership, relative to the association of financial literacy and risk tolerance. Context matters when measuring FoMO with the more context-specific measures having the largest associations with investment behaviour and investment intentions. Finally, our results suggest financial literacy is an antecedent of FoMO, more so for stocks.

We use administrative data on federal civilian workers' accounts in their employer-provided defined contribution plan, called the thrift savings plan (TSP), to provide new evidence on the effects of employer matching and defaults on workers' savings behavior. The empirical analysis relies on exogenous variation stemming from two natural experiments caused by policy changes to the TSP: the establishment of an employer match for workers hired after 1983 and the introduction of automatic enrollment for workers hired after July 2010. We find that the introduction of the employer match lead to a higher increase in both participation and contribution rates compared to the subsequent switch to automatic enrollment. In terms of portfolio allocations, we find that matching and automatic enrollment had small and minimal effects, respectively.

Willingness to participate in financial markets is important for financial well-being, including the accumulation of retirement savings through self-directed pension programs. We consider the roles of two key factors, trust and financial literacy in financial market participation. We find both are strongly related to participation. Although trust is more uniformly correlated with increases in financial market participation, the relationship between financial literacy and engagement is u-shaped, with increases in financial literacy first associated with reductions and subsequently with increases in the levels of participation. Our findings suggest trust and financial literacy play different roles and that each is related to investment behaviors in important ways.

Target-date funds in corporate retirement plans grew from $5 billion in 2000 to $734 billion in 2018, partly because federal regulation sanctioned these as default investments in automatic enrollment plans. We show that adopters delegated pension investment decisions to fund managers selected by plan sponsors. Inclusion of these funds in retirement saving menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings, and reduced idiosyncratic risk. The adoption of low-cost target-date funds may enhance retirement wealth by as much as 50% over a 30-year horizon.

This paper reports the results from a large telephone survey of 1,000 retiring white-collar workers in Sweden. Shortly before the interview, the participants at age 65 had a choice of receiving a life annuity by default or opting for a fixed-term payout, with a minimum payout length of 5 years. Large monetary amounts were at stake in the payout decision of the survey participants; the average monthly pension payment under the life annuity amounted to US $280. Comparing the survey responses with administrative records on actual payout choices, I find that a majority of retiring white-collar workers fail to recall their payout decision. The recollection rate is much lower among annuitants (those who chose the default option); only 40% of the annuitants accurately recalled their payout decision compared to 77% of those who opted for a fixed-term payout. Beyond payout choice, few individual characteristics predict successful recollection.

Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement well-being would do well to consider the importance of both factors.

This paper presents the results from the first study of financial literacy in Finland and explores the relationship between financial literacy and retirement planning in Finland. Finland is an interesting case because countervailing effects may exist: a high level of education might increase financial literacy, while the high provision of social security may decrease it and weaken its relationship with pension planning. The results indicate that the level of financial literacy in Finland is comparatively high, although it is unequally distributed among the population. With respect to pension planning, we find that there is little evidence of a relationship between the three core financial literacy questions and retirement planning; however, a statistically significant and positive relationship exists between retirement planning and an extended measure of financial literacy, consisting mostly of more demanding questions. When we split the sample by gender, we find evidence of a positive relationship between financial literacy and retirement planning among women but not among men. The results indicate that scaling down publicly guaranteed pension benefits may pose a challenge to the less financially literate segment of the population.