The Causal Effects of Confidence Awareness on Financial Literacy and Behaviour

• Authors: Ana Lleó-Bono, Ines Lee, Eileen Tipoe and Christopher Rauh.
• BSE Working Paper: 1522 | October 25
• Keywords: survey experiments , confidence , onfidence awareness , personal finance , financial literacy
• JEL codes: D14, D83, D91, G11, G53

This paper examines whether increasing individuals’ awareness of their own confidence can influence financial behaviour. In a pre-registered online experiment with nearly 3,000 U.S. adults, we test the effects of a novel metacognitive intervention: personalised feedback on implicit confidence about one’s financial abilities, as measured by a custom Implicit Association Test (IAT), paired with an explanation of the importance of self-confidence in financial abilities. Treated participants show a significant reduction in “don’t know” responses on financial literacy tests and their performance in an incentivised investment task significantly improves: treated participants are less likely to make clearly dominated choices, more likely to select efficient allocations, and choose portfolios closer to the efficient frontier. These effects persist two weeks later in a follow-up survey with obfuscated framing. Heterogeneity analyses show stronger effects for females and for participants who understate their confidence (i.e. whose reported confidence is lower than what their IAT suggests).