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Optimal financial education

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  • Subrahmanyam, Avanidhar

Abstract

When agents first invest in financial markets, they are relatively inexperienced. The agents best positioned to educate the inexperienced stand to earn trading profits at the expense of inexperienced agents. Owing to this phenomenon, we show that the equilibrium amount of financial education does not fully correct the biases of the inexperienced agents. In a dynamic setting, large levels of uninformed trading volume may be generated by the inexperienced agents. This is because, in equilibrium, the experienced intermediaries may delay educating the inexperienced in order to earn commissions in earlier rounds of trade.

Suggested Citation

  • Subrahmanyam, Avanidhar, 2009. "Optimal financial education," Review of Financial Economics, Elsevier, vol. 18(1), pages 1-9, January.
    • Handle: RePEc:eee:revfin:v:18:y:2009:i:1:p:1-9
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    References listed on IDEAS

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    3. Abreu, Margarida & Mendes, Victor, 2018. "The investor in structured retail products: Advice driven or gambling oriented?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 1-9.

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