Financial Literacy, Ambiguity, and Financial Decisions

Last registered on January 22, 2023

Pre-Trial

Trial Information

General Information

Title
Financial Literacy, Ambiguity, and Financial Decisions
RCT ID
AEARCTR-0010704
Initial registration date
January 06, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
January 22, 2023, 10:44 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region
Region

Primary Investigator

Affiliation
LIUC University

Other Primary Investigator(s)

PI Affiliation
Bocconi University

Additional Trial Information

Status
In development
Start date
2023-01-07
End date
2023-05-31
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This research project aims to understand whether and how a specific form of financial literacy influences invesment choices and attitudes towards uncertainty. In particular, here we want to study whether making individuals think more appropriately in terms of contingent reasoning improves how they think about financial decisions and whether this form of financial literacy shape investment decisions.

External Link(s)

Registration Citation

Citation
Burro, Giovanni and Alessandro Castagnetti. 2023. "Financial Literacy, Ambiguity, and Financial Decisions ." AEA RCT Registry. January 22. https://doi.org/10.1257/rct.10704-1.0
Experimental Details

Interventions

Intervention(s)
Intervention (Hidden)
The treatment conditions that we will implement are:
1) Condition I (Main treatment): financial literacy treatment in terms of ambiguity literacy (i.e., contingent reasoning treatment).
2) Condition II (Info treatment): financial literacy treatment in terms of ambiguity literacy (i.e., contingent reasoning treatment) + stock-specific information on past performance of the asset.
3) Condition III: same as above but financial literacy treatment is made more appealing via graphs and simple examples.
4) Condition IV: standard financial literacy treatment. That is, we provide standard information to individuals about investment (risk-return tradeoff).
5) Condition V (Main control). No information provided to individuals.
Intervention Start Date
2023-01-07
Intervention End Date
2023-05-31

Primary Outcomes

Primary Outcomes (end points)
1. Investment Financial Decisions
Primary Outcomes (explanation)
The main outcome variable of this research is to assess the impact of financial literacy (in terms of ambiguity/contingent reasoning) on investment choices.

Secondary Outcomes

Secondary Outcomes (end points)
1. Beliefs about a stock
2. Confidence of participants in their own choices
3. Ambiguity attitudes
4. The heterogenous effect of memory on investment choices (irrespective of the experimental conditions)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
First, at the outset of the experiment, participants will perform a simple financial literacy questionnaire.
Participants will also be asked to think of what sort of memories financial markets trigger in them.
Following this, participants will be randomly assigned to an experimental condition. The conditions entail the specific financial literacy information disclosed (or absence of it). Thus, participants are asked to make a financial investment decision and are asked about their attitudes towards uncertainty and ambiguity.
Experimental Design Details
First, at the outset of the experiment, participants will perform a simple financial literacy questionnaire.
This questionnaire consists of "Big Three" Financial literacy questions. In the same page, participants are also asked to think of an event related to the stock market and indicate what feelings it suggest to the participant.

Following this, participants will be randomly assigned to an experimental condition.
Condition I: participants are given the following information: "What are the chances that a financial instrument increases or decreases in price over time? A financial asset can increase, stay constant, or decrease in price. In particular, each possibility is not necessarily equally likely. For instance, for one specific asset it could be more likely that it increases in price, or vice versa."
Condition II: participants are given the following information: "What are the chances that a financial instrument increases or decreases in price over time? A financial asset can increase, stay constant, or decrease in price. In particular, each possibility is not necessarily equally likely. For instance, for one specific asset it could be more likely that it increases in price, or vice versa." + stock-specific information on past performance of the asset.
Condition III: participants are given the following information: "The change of prices of financial instruments over time is like sports results. Some prices are more likely to go up in the same way football teams are more likely to win matches. Consider the football match between Manchester City and Leeds. It is considered more likely that Manchester City wins the match compared to the probability that Leeds wins it."
Note that the example of the football match may change.
Condition IV: participants are given the following information: "When a financial instrument promises a higher return, also the associated risk of losing the money invested is higher. This is called the risk-return tradeoff. Because of this, in finance, it is said that there are no easy earnings. We need to take into account this concept when making financial decisions."
Condition V: no information.

After this, participants are given the current price of a specific stock (stock S, price P) and are asked to assess the probability with which they think that the stock will increase in price by X (P+X), will decrease in price by Y (P-Y), or will stay in the price range [P-Y;P+X] after 14 days. This elicitation is payoff relevant and is incentivized following Karni (2009).

Thus, participants will be given an amount of money and are asked what percentage of it they want to keep and how much they want to invest in stock S. They win 2.5 times the amount invested if the price of the S after 14 days is above a given price PI. Otherwise, they lose the investment.

The next page of the experiment will ask participants how confident they are about their beliefs about the stock S price in the future, and that the amount invested in the stock will yield a positive return. Also, for those participants in conditions I-II-III-IV, we will ask them whether they consider the information provided to them prior the investment decision useful or not.

The last part of the experiment consisted of measuring ambiguity attitudes towards the same stock S following Baillon et al. (2018) elicitation method. This part might be also elicited on a separate sample, right after participants receive the information treatment.

Randomization Method
Done by the computer software (Qualtrics).
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
N=750
Sample size: planned number of observations
N=750 However, if the funding is depleted sooner the total number of observations will be lower.
Sample size (or number of clusters) by treatment arms
150 individuals by condition.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Considering a mean investment of 50% of the pot (15 units out of 30) in the control and a standard deviation of 2.5, the experiment is able to detect a change of around 15% at conventional levels (alpha=0.05, 1-beta=0.80)
IRB

Institutional Review Boards (IRBs)

IRB Name
Università commerciale Luigi Bocconi
IRB Approval Date
2022-12-29
IRB Approval Number
N/A

Post-Trial

Post Trial Information

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials