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Networks, knowledge, and nudges: Determinants of retail investor compliance

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  • Petrakis, Ioannis

Abstract

This paper studies the behavioral and structural determinants of retail investors’ engagement with FINRA Rule 4512, a light-touch intervention encouraging the voluntary designation of a trusted contact. Using microdata from the 2021 National Financial Capability Study, we show that fewer than 38% of eligible U.S. investors had ever adopted this safeguard, pointing to substantial frictions in precautionary financial behavior. We develop a behavioral framework in which adoption reflects bounded attention, financial capability, portfolio complexity, and social trust. Empirically, we analyze both naming a trusted contact and being named by others. To address endogeneity, we instrument financial literacy with exposure to mandatory high-school financial education. Financial literacy has a large causal effect on compliance, portfolio sophistication predicts both outcomes, and social capital strongly moderates these relationships. In low-trust environments, literacy weakly predicts or deters delegation; in high-trust regions, it powerfully amplifies adoption and peer recognition.

Suggested Citation

  • Petrakis, Ioannis, 2026. "Networks, knowledge, and nudges: Determinants of retail investor compliance," Journal of Behavioral and Experimental Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:beexfi:v:50:y:2026:i:c:s2214635026000304
    DOI: 10.1016/j.jbef.2026.101168
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D3 - Microeconomics - - Distribution

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