Dec 17, 2013
Four Studies with a National Sample
Published in: Journal of Behavioral Decision Making, v. 25, no. 4, Oct. 2012, p. 382-389
Posted on RAND.org on October 01, 2012
Financial decisions about investing and saving for retirement are increasingly complex, requiring financial knowledge and confidence in that knowledge. Few studies have examined whether direct assessments of individuals' confidence are related to the outcomes of their financial decisions. Here, we analyzed data from a national sample recruited through RAND's American Life Panel, an Internet panel study of US adults aged 18–88 years. We examined the relationship of confidence with self-reported and actual financial decisions, using four different tasks, each performed by overlapping samples of American Life Panel participants. The four tasks were designed by different researchers for different purposes, using different methods to assess confidence. Yet, measures of confidence were correlated across tasks, and results were consistent across methodologies. Confidence and knowledge showed only modest positive correlations. However, even after controlling for actual knowledge, individuals with greater confidence were more likely to report financial planning for retirement and to successfully minimize fees on a hypothetical investment task. Implications for the role of confidence in investment behavior (even if it is unjustified) is discussed.