Households’ risk perceptions, overplacement, and financial literacy (Tabea Bucher-Koenen, Pirmin Fessler, Maria Silgoner)

Household financial resilience is related to the availability of financial resources but also to the ability to anticipate and assess future situations and prepare for them accordingly. Overplacement describes the tendency of individuals to rate themselves better than others, i.e. they believe that their own chances of experiencing a negative (positive) event are lower (higher) than those of others. In a randomized survey experiment we asses households’ perceptions of specific risks, which could affect the future financial situation of their own household (treatment) or of a household with similar characteristics (control). On average, households assign lower probabilities to shocks that negatively affect personal finances if asked for their own household compared to a similar household – confirming overplacement bias in the context of financial risks. We do not find the reverse effect for positive shocks. The treatment effect is stronger among households with lower financial literacy, indicating that financial literacy is relevant for the ability to assess future financial shocks.