Traditional economic models assume that individuals have full information and act perfectly rationally. However, we show that there is considerable variation in financial literacy in the population and propose modeling the acquisition of financial knowledge in a human capital production framework. The model makes several predictions, notably with respect to portfolio choice. For example, it helps explain household non-participation in the stock market for some fraction of the population, and it provides guidance about the share of risky assets to hold for other types of households. Estimation of the human capital production function for financial knowledge on data from the Cognitive Economics Survey yields results that are consistent with important features of the model.
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number
wp190.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Haliassos, Michael & Bertaut, Carol C, 1995.
"Why Do So Few Hold Stocks?,"
Economic Journal,
Royal Economic Society, vol. 105(432), pages 1110-29, September.
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