Template-Type: ReDIF-Paper 1.0
Author-Name: Lorenzo Esposito
Author-X-Name-First: Lorenzo
Author-X-Name-Last: Esposito
Author-Email: lorenzo.esposito@unicatt.it
Author-Workplace-Name: Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore – Banca d'Italia, Milano
Author-Name: Lorenzo Marrese
Author-X-Name-First: Lorenzo
Author-X-Name-Last: Marrese
Author-Email: lorenzo.marrese01@icatt.it
Author-Workplace-Name: DISCE, Università Cattolica del Sacro Cuore
Title: The impact of cognitive skills on investment decisions. An empirical assessment and policy suggestions
Abstract: Results of behavioral economics pose a strong challenge to mainstream finance theory conclusions. We discuss, theoretically and empirically, the connections of cognitive skills, biases and financial decisions using the Cognitive Reflection Test (Frederick, 2005). In particular, we have chosen overconfidence, risk aversion, bandwagon effect, time preference and money illusion, among the biases most discussed in the literature. The experiment we conducted confirmed a role of the cognitive skills in determining the decision mechanism of the investor although not neatly, especially for more complex biases, such as money illusion. Finally, we expose policy alternatives, focusing on the role of financial education to tackle cognitive biases in finance and monetary policy. 
Length: 43 
Creation-Date: 2021-07
File-URL: http://dipartimenti.unicatt.it/politica-economica-DIPE0019.pdf
File-Format: Application/pdf
File-Function: First version, 2021
Number: dipe0019
Classification-JEL: G41 
Keywords: cognitive biases, financial education, behavioral economics, CRT 
Handle: RePEc:ctc:serie5:dipe0019