Behavioral Biases, Financial Literacy and Borrowing Decisions

Project summary

Competence in financial decision making is becoming increasingly important. However, most individuals make suboptimal financial decisions. Project A03 examines the hypothesis that these poor decisions may be (partially) caused by behavioral distortions and we explore how these interact with a person’s level of financial literacy. In particular, the project will test the impact of (i) biased return expectations, (ii) self-control problems and (iii) social comparisons on too much and too expensive borrowing. In a possible second phase it is planned to develop and test in a randomized design a financial training which explicitly considers behavioral distortions.