Philip Fernbach
Website

Bart De Langhe
Website

J.D. Trout
Website

The Interplay of Subjective and Objective Understanding in Financial Decision-Making


Principal Investigators

Philip Fernbach
Assistant Professor of Marketing
University of Colorado

Bart De Langhe
Assistant Professor of Marketing
University of Colorado


Team Member

J.D. Trout
Professor of Philosophy and Psychology
Loyola University, Chicago

 

Suboptimal financial decision-making is a major societal problem, and one that is intimately connected to the psychology of understanding. This project addresses two primary hypotheses about the cognitive underpinnings of financial decision-making. The first is that people conflate their sense of understanding with objective risk, leading to poor calibration and decision errors. The second is that the ineffectiveness of financial education can be traced to its inability to engender true understanding. As a consequence, decision-makers misapply and defect from decision rules, fail to generalize what they have learned to new domains and quickly forget how to apply what they have learned. These hypotheses will be tested in a series of laboratory studies, and the project will culminate with a field study conducted in partnership with the University of Colorado Financial Education department, where they will test interventions intended to increase understanding of decision rules and measure various financial outcomes.