A Method for Evaluating the Quality of Financial Decision Making, with an Application to Financial Education

46 Pages Posted: 27 Oct 2014

See all articles by Sandro Ambuehl

Sandro Ambuehl

University of Toronto - Joseph L. Rotman School of Management - Business Economics; University of Toronto at Scarborough - Division of Management

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

We introduce a method for measuring the quality of financial decisions built around a notion of financial competence, which gauges the alignment between consumers choices and those they would make if they properly understood their opportunities. We prove our measure admits a formal welfare interpretation even when consumers suffer from additional decision-making flaws, known and unknown, outside the scope of analysis. An application illuminates the pitfalls of the types of brief rhetoric-laden interventions commonly used for adult financial education: they affect behavior through unintended mechanisms, and hence may not improve decisions even when they perform well according to conventional metrics.

Suggested Citation

Ambuehl, Sandro and Bernheim, B. Douglas and Lusardi, Annamaria, A Method for Evaluating the Quality of Financial Decision Making, with an Application to Financial Education (October 2014). NBER Working Paper No. w20618. Available at SSRN: https://ssrn.com/abstract=2515196

Sandro Ambuehl (Contact Author)

University of Toronto - Joseph L. Rotman School of Management - Business Economics ( email )

Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Ambuehl

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

B. Douglas Bernheim

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Annamaria Lusardi

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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