IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v52y2020i56p6090-6099.html
   My bibliography  Save this article

On the relationship between financial literacy and choice behaviours under different risk elicitation methods in surveys

Author

Listed:
  • Geng Peng
  • Xiaodan Zhang
  • Fang Liu
  • Wenyi Lu
  • Yongxing Wang
  • Qiang Yin

Abstract

A few pieces of literature based primarily on experiments have proved that the risk elicitation instrument can affect the measurement of subject’s risk preferences. Using the China Household Finance Survey data, we focus on the risk choice behaviours of respondents when they choose between two different elicitation methods that have different complexities and a different number of options, respectively. Specifically, one is simpler but with more options, and another is more complex but with fewer options. Moreover, we further discuss the impact of two methods on the relationship between financial literacy and risk attitude. The theoretical and empirical studies indicate that the respondents will be more risk-loving in the elicitation method with simpler and more options because of computation avoiding and noisy behaviours. Also, this paper finds that financial literacy has a positive relation with risk preferences, and low-literacy respondents have more irrational drift behaviours of risk choice. Our results suggest that it is vital to tradeoff the complexity and number of options for risk elicitation methods in surveys.

Suggested Citation

  • Geng Peng & Xiaodan Zhang & Fang Liu & Wenyi Lu & Yongxing Wang & Qiang Yin, 2020. "On the relationship between financial literacy and choice behaviours under different risk elicitation methods in surveys," Applied Economics, Taylor & Francis Journals, vol. 52(56), pages 6090-6099, December.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:56:p:6090-6099
    DOI: 10.1080/00036846.2020.1784385
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2020.1784385
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2020.1784385?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(4), pages 332-368, October.
    2. Huck, Steffen & Weizsacker, Georg, 1999. "Risk, complexity, and deviations from expected-value maximization: Results of a lottery choice experiment," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 699-715, December.
    3. Annamaria Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," CeRP Working Papers 46, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    4. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive abilities and behavioral biases," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 147-152, October.
    5. repec:cup:judgdm:v:4:y:2009:i:1:p:20-33 is not listed on IDEAS
    6. James Andreoni & Charles Sprenger, 2012. "Risk Preferences Are Not Time Preferences," American Economic Review, American Economic Association, vol. 102(7), pages 3357-3376, December.
    7. Matthew Taylor, 2013. "Bias and brains: Risk aversion and cognitive ability across real and hypothetical settings," Journal of Risk and Uncertainty, Springer, vol. 46(3), pages 299-320, June.
    8. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2016. "Risk Aversion Relates To Cognitive Ability: Preferences Or Noise?," Journal of the European Economic Association, European Economic Association, vol. 14(5), pages 1129-1154, October.
    9. Taylor, Matthew P., 2016. "Are high-ability individuals really more tolerant of risk? A test of the relationship between risk aversion and cognitive ability," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 136-147.
    10. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    11. repec:cup:judgdm:v:5:y:2010:i:3:p:182-191 is not listed on IDEAS
    12. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive Abilities and Behavioral Biases," Working Papers 0465, University of Heidelberg, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2018. "On the Relationship between Cognitive Ability and Risk Preference," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 115-134, Spring.
    2. Taylor, Matthew P., 2020. "Heterogeneous motivation and cognitive ability in the lab," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 85(C).
    3. Amador, Luis & Brañas-Garza, Pablo & Espín, Antonio M. & Garcia, Teresa & Hernández, Ana, 2019. "Consistent and inconsistent choices under uncertainty: The role of cognitive abilities," MPRA Paper 95178, University Library of Munich, Germany.
    4. Nicolas Eber & Patrick Roger & Tristan Roger, 2024. "Finance and intelligence: An overview of the literature," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 503-554, April.
    5. Holden, Stein T. & Tilahun, Mesfin, 2019. "How related are risk preferences and time preferences?," CLTS Working Papers 4/19, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 16 Oct 2019.
    6. repec:cup:judgdm:v:14:y:2019:i:3:p:234-279 is not listed on IDEAS
    7. Mark Schneider, 2016. "Dual Process Utility Theory: A Model of Decisions Under Risk and Over Time," Working Papers 16-23, Chapman University, Economic Science Institute.
    8. Amador-Hidalgo, Luis & Brañas-Garza, Pablo & Espín, Antonio M. & García-Muñoz, Teresa & Hernández-Román, Ana, 2021. "Cognitive abilities and risk-taking: Errors, not preferences," European Economic Review, Elsevier, vol. 134(C).
    9. Lucy F. Ackert & Richard Deaves & Jennifer Miele & Quang Nguyen, 2020. "Are Time Preference and Risk Preference Associated with Cognitive Intelligence and Emotional Intelligence?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 21(2), pages 136-156, April.
    10. repec:cup:judgdm:v:14:y:2019:i:5:p:591-604 is not listed on IDEAS
    11. Lau Lilleholt, 2019. "Cognitive ability and risk aversion: A systematic review and meta analysis," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(3), pages 234-279, May.
    12. Taylor, Matthew P., 2016. "Are high-ability individuals really more tolerant of risk? A test of the relationship between risk aversion and cognitive ability," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 136-147.
    13. Muhammad Sajid & Matthew C. Li, 2019. "The role of cognitive reflection in decision making: Evidence from Pakistani managers," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(5), pages 591-604, September.
    14. Kai Duttle & Keigo Inukai, 2015. "Complexity Aversion: Influences of Cognitive Abilities, Culture and System of Thought," Economics Bulletin, AccessEcon, vol. 35(2), pages 846-855.
    15. Ruffle, Bradley J. & Wilson, Anne E., 2019. "Tat will tell: Tattoos and time preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 566-585.
    16. Tiziana Assenza & Alberto Cardaci & Domenico Delli Gatti, 2019. "Perceived Wealth, Cognitive Sophistication and Behavioral Inattention," CESifo Working Paper Series 7992, CESifo.
    17. Mariam Raheem & Ain ul Momina, 2021. "Do Underlying Risk Preferences explain Individuals’ Cognitive Ability? Evidence from a Sample of Pakistani Students," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 26(1), pages 85-122, Jan-June.
    18. Brañas-Garza, Pablo & Kujal, Praveen & Lenkei, Balint, 2019. "Cognitive reflection test: Whom, how, when," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 82(C).
    19. Oberrauch, Luis & Kaiser, Tim, 2022. "Cognitive ability, financial literacy, and narrow bracketing in time-preference elicitation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 98(C).
    20. Emma Boswell Dean & Frank Schilbach & Heather Schofield, 2017. "Poverty and Cognitive Function," NBER Chapters, in: The Economics of Poverty Traps, pages 57-118, National Bureau of Economic Research, Inc.
    21. Jimenez, Natalia & Rodriguez-Lara, Ismael & Tyran, Jean-Robert & Wengström, Erik, 2018. "Thinking fast, thinking badly," Economics Letters, Elsevier, vol. 162(C), pages 41-44.
    22. Thomas Meissner & Xavier Gassmann & Corinne Faure & Joachim Schleich, 2023. "Individual characteristics associated with risk and time preferences: A multi country representative survey," Journal of Risk and Uncertainty, Springer, vol. 66(1), pages 77-107, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:52:y:2020:i:56:p:6090-6099. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.