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Optimal financial education

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  • Avanidhar Subrahmanyam

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

  • Avanidhar Subrahmanyam, 2009. "Optimal financial education," Review of Financial Economics, John Wiley & Sons, vol. 18(1), pages 1-9, January.
    • Handle: RePEc:wly:revfec:v:18:y:2009:i:1:p:1-9
    DOI: 10.1016/j.rfe.2008.10.003
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    References listed on IDEAS

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