Download this Paper Open PDF in Browser

Social Transmission of Financial Decision Making Skills. A Case of the Blind Leading the Blind?

30 Pages Posted: 31 Dec 2016 Last revised: 23 Jan 2017

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)

Fulya Y. Ersoy

Stanford University, Department of Economics, Students

Donna Harris

University of Oxford - Department of Economics

Date Written: January 2, 2017

Abstract

Often, people consult with others for advice before they make financial decisions. Previous research argues that such communication amounts to a case of the blind leading the blind. In this paper, we document that it can be beneficial, and explore mechanisms. In our laboratory experiment, subjects make private decisions about investments involving compound interest both before and after they communicate with a randomly assigned partner. Communication not only improves decision making for the specific tasks they have sought advice about, but subjects successfully generalize these skills to novel decision problems. We find that communication is most beneficial when pair members’ skills are at similar levels — the transmission of financial competence requires a common language, and is not merely a case of information flowing from those who have it to those who do not. Finally, communication leads subjects to reevaluate their privately revealed time preferences. Discount rates move towards the communication partners’ rate, and do so to a larger extent if the partner is more patient. We suggest policies to improve the quality of financial decision making.

Keywords: Communication, Financial Literacy, Financial Competence, Behavioral Welfare Eco- nomics, Experimental Economics, Exponential Growth Bias

JEL Classification: D03, D12, D69, G02

Suggested Citation

Ambuehl, Sandro and Bernheim, B. Douglas and Ersoy, Fulya Y. and Harris, Donna, Social Transmission of Financial Decision Making Skills. A Case of the Blind Leading the Blind? (January 2, 2017). Rotman School of Management Working Paper No. 2891753. Available at SSRN: https://ssrn.com/abstract=2891753

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fulya Yuksel Ersoy

Stanford University, Department of Economics, Students ( email )

Stanford, CA
United States

Donna Harris

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, Oxfordshire OX1 3UQ
United Kingdom

Paper statistics

Downloads
90
Rank
240,661
Abstract Views
425