IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v166y2024ics0378426624001547.html
   My bibliography  Save this article

Gender difference in overconfidence and household financial literacy

Author

Listed:
  • Lawrence, Edward R.
  • Nguyen, Thanh D.
  • Wick, Benedikt

Abstract

We study overconfidence related to financial knowledge among men and women within U.S. households, venturing beyond prior research confined to subsamples such as CEOs, retail investors, and older adults. By expanding our study to the broader U.S. population, we provide evidence that women, on average, exhibit greater overconfidence than men – a discrepancy attributable to the gender difference in financial knowledge. We find a positive association between overconfidence and both investment risk-taking and savings behavior, while it correlates inversely with prudent credit card management. Our findings emphasize the instrumental role of financial literacy in mitigating overconfidence, providing a deeper understanding of the interaction between gender, overconfidence, and financial literacy. Our results carry profound implications for policy interventions and educational strategies.

Suggested Citation

  • Lawrence, Edward R. & Nguyen, Thanh D. & Wick, Benedikt, 2024. "Gender difference in overconfidence and household financial literacy," Journal of Banking & Finance, Elsevier, vol. 166(C).
    • Handle: RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001547
    DOI: 10.1016/j.jbankfin.2024.107237
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426624001547
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2024.107237?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yates, J. Frank & Lee, Ju-Whei & Bush, Julie G G., 1997. "General Knowledge Overconfidence: Cross-National Variations, Response Style, and "Reality"," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(2), pages 87-94, May.
    2. Lex Borghans & Bart H. H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity Aversion," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 649-658, 04-05.
    3. Terrance Odean., 1996. "Volume, Volatility, Price and Profit When All Trader Are Above Average," Research Program in Finance Working Papers RPF-266, University of California at Berkeley.
    4. Hirshleifer, David & Luo, Guo Ying, 2001. "On the survival of overconfident traders in a competitive securities market," Journal of Financial Markets, Elsevier, vol. 4(1), pages 73-84, January.
    5. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    6. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    7. Kyle, Albert S & Wang, F Albert, 1997. "Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-2090, December.
    8. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(4), pages 332-368, October.
    9. Harrison Hong & José Scheinkman & Wei Xiong, 2006. "Asset Float and Speculative Bubbles," Journal of Finance, American Finance Association, vol. 61(3), pages 1073-1117, June.
    10. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-630, October.
    11. Kent Daniel & David Hirshleifer, 2015. "Overconfident Investors, Predictable Returns, and Excessive Trading," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 61-88, Fall.
    12. Langnickel, Ferdinand & Zeisberger, Stefan, 2016. "Do we measure overconfidence? A closer look at the interval production task," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 121-133.
    13. Deaves, Richard & Lüders, Erik & Schröder, Michael, 2010. "The dynamics of overconfidence: Evidence from stock market forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 402-412, September.
    14. Daylian M. Cain & Don A. Moore & Uriel Haran, 2015. "Making sense of overconfidence in market entry," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 1-18, January.
    15. Tabea Bucher-Koenen & Annamaria Lusardi & Rob Alessie & Maarten van Rooij, 2017. "How Financially Literate Are Women? An Overview and New Insights," Journal of Consumer Affairs, Wiley Blackwell, vol. 51(2), pages 255-283, July.
    16. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1067-1101.
    17. Bruno Biais & Denis Hilton & Karine Mazurier & Sébastien Pouget, 2005. "Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 287-312.
    18. repec:bla:jfinan:v:53:y:1998:i:6:p:1839-1885 is not listed on IDEAS
    19. Almenberg, Johan & Dreber, Anna, 2015. "Gender, stock market participation and financial literacy," Economics Letters, Elsevier, vol. 137(C), pages 140-142.
    20. Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 353-383, September.
    21. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 1-36, June.
    22. Pietro Ortoleva & Erik Snowberg, 2015. "Overconfidence in Political Behavior," American Economic Review, American Economic Association, vol. 105(2), pages 504-535, February.
    23. Cohn, Richard A, et al, 1975. "Individual Investor Risk Aversion and Investment Portfolio Composition," Journal of Finance, American Finance Association, vol. 30(2), pages 605-620, May.
    24. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    25. Annamaria Lusardi, 2008. "Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs," NBER Working Papers 13824, National Bureau of Economic Research, Inc.
    26. repec:eme:mfppss:mf-10-2015-0269 is not listed on IDEAS
    27. Yates, J. Frank & Lee, Ju-Whei & Shinotsuka, Hiromi & Patalano, Andrea L. & Sieck, Winston R., 1998. "Cross-Cultural Variations in Probability Judgment Accuracy: Beyond General Knowledge Overconfidence?," Organizational Behavior and Human Decision Processes, Elsevier, vol. 74(2), pages 89-117, May.
    28. Kennedy, Jessica A. & Anderson, Cameron & Moore, Don A., 2013. "When overconfidence is revealed to others: Testing the status-enhancement theory of overconfidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 122(2), pages 266-279.
    29. Dwyer, Peggy D. & Gilkeson, James H. & List, John A., 2002. "Gender differences in revealed risk taking: evidence from mutual fund investors," Economics Letters, Elsevier, vol. 76(2), pages 151-158, July.
    30. Anderson, Cameron & Brion, Sebastien & Moore, Don A. & Kennedy, Jessica A., 2012. "A status-enhancement account of overconfidence," Institute for Research on Labor and Employment, Working Paper Series qt6s5812wf, Institute of Industrial Relations, UC Berkeley.
    31. Kent D. Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 2001. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing," Journal of Finance, American Finance Association, vol. 56(3), pages 921-965, June.
    32. Prince, Melvin, 1993. "Women, men and money styles," Journal of Economic Psychology, Elsevier, vol. 14(1), pages 175-182, March.
    33. Meir Statman & Steven Thorley & Keith Vorkink, 2006. "Investor Overconfidence and Trading Volume," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1531-1565.
    34. Mark Grinblatt & Matti Keloharju, 2009. "Sensation Seeking, Overconfidence, and Trading Activity," Journal of Finance, American Finance Association, vol. 64(2), pages 549-578, April.
    35. Kathleen Arano & Carl Parker & Rory Terry, 2010. "Gender‐Based Risk Aversion And Retirement Asset Allocation," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 147-155, January.
    36. Lex Borghans & Bart H.H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity," Working Papers 200903, Geary Institute, University College Dublin.
    37. Sunden, Annika E & Surette, Brian J, 1998. "Gender Differences in the Allocation of Assets in Retirement Savings Plans," American Economic Review, American Economic Association, vol. 88(2), pages 207-211, May.
    38. Alexandra Bernasek & Stephanie Shwiff, 2001. "Gender, Risk, and Retirement," Journal of Economic Issues, Taylor & Francis Journals, vol. 35(2), pages 345-356, June.
    39. Palvia, Ajay & Vähämaa, Emilia & Vähämaa, Sami, 2020. "Female leadership and bank risk-taking: Evidence from the effects of real estate shocks on bank lending performance and default risk," Journal of Business Research, Elsevier, vol. 117(C), pages 897-909.
    40. Richard Deaves & Erik Lüders & Guo Ying Luo, 2009. "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity," Review of Finance, European Finance Association, vol. 13(3), pages 555-575.
    41. Ravi Dhar & Ning Zhu, 2006. "Up Close and Personal: Investor Sophistication and the Disposition Effect," Management Science, INFORMS, vol. 52(5), pages 726-740, May.
    42. Michael Muthukrishna & Joseph Henrich & Wataru Toyokawa & Takeshi Hamamura & Tatsuya Kameda & Steven J Heine, 2018. "Overconfidence is universal? Elicitation of Genuine Overconfidence (EGO) procedure reveals systematic differences across domain, task knowledge, and incentives in four populations," PLOS ONE, Public Library of Science, vol. 13(8), pages 1-30, August.
    43. Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March.
    44. Yates, J. Frank & Zhu, Ying & Ronis, David L. & Wang, Deng-Feng & Shinotsuka, Hiromi & Toda, Masanao, 1989. "Probability judgment accuracy: China, Japan, and the United States," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(2), pages 145-171, April.
    45. Cueva, Carlos & Iturbe-Ormaetxe, Iñigo & Ponti, Giovanni & Tomás, Josefa, 2019. "Boys will still be boys: Gender differences in trading activity are not due to differences in (over)confidence," Journal of Economic Behavior & Organization, Elsevier, vol. 160(C), pages 100-120.
    46. repec:bla:jfinan:v:53:y:1998:i:6:p:1887-1934 is not listed on IDEAS
    47. Hibbert, Ann Marie & Lawrence, Edward R. & Prakash, Arun J., 2013. "Does knowledge of finance mitigate the gender difference in financial risk-aversion?," Global Finance Journal, Elsevier, vol. 24(2), pages 140-152.
    48. Huang, Jiekun & Kisgen, Darren J., 2013. "Gender and corporate finance: Are male executives overconfident relative to female executives?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 822-839.
    49. Charness, Gary & Gneezy, Uri, 2012. "Strong Evidence for Gender Differences in Risk Taking," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 50-58.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlos Cueva Herrero & Iñigo Iturbe-Ormaetxe Kortajarene & Giovanni Ponti & Josefa Tomás Lucas, 2017. "Boys will (still) be boys: Gender differences in trading activity are not due to differences in confidence," Working Papers. Serie AD 2017-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Cueva, Carlos & Iturbe-Ormaetxe, Iñigo & Ponti, Giovanni & Tomás, Josefa, 2019. "Boys will still be boys: Gender differences in trading activity are not due to differences in (over)confidence," Journal of Economic Behavior & Organization, Elsevier, vol. 160(C), pages 100-120.
    3. Kenneth Yung & Yen-Chih Liu, 2009. "Implications of futures trading volume: Hedgers versus speculators," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 318-337, December.
    4. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    5. Brooks, Chris & Sangiorgi, Ivan & Hillenbrand, Carola & Money, Kevin, 2019. "Experience wears the trousers: Exploring gender and attitude to financial risk," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 483-515.
    6. Fellner-Röhling, Gerlinde & Krügel, Sebastian, 2014. "Judgmental overconfidence and trading activity," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 827-842.
    7. Michailova, Julija, 2010. "Development of the overconfidence measurement instrument for the economic experiment," MPRA Paper 34799, University Library of Munich, Germany, revised Nov 2011.
    8. Wang, Qi & Xiong, Xiong & Yang, Zhuoyi & An, Yahui & Feng, Xu, 2024. "Attention of women's liberation and investor herding behavior," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 520-544.
    9. Bannier, Christina E. & Neubert, Milena, 2016. "Actual and perceived financial sophistication and wealth accumulation: The role of education and gender," CFS Working Paper Series 528, Center for Financial Studies (CFS).
    10. Michailova, Julija, 2010. "Overconfidence, Risk Aversion and Individual Financial Decisions in Experimental Asset Markets," MPRA Paper 53114, University Library of Munich, Germany, revised Jan 2014.
    11. Cueva, Carlos & Rustichini, Aldo, 2015. "Is financial instability male-driven? Gender and cognitive skills in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 330-344.
    12. Salem, Razan, 2019. "Examining the investment behavior of Arab women in the stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 151-160.
    13. Barber, Brad M. & Odean, Terrance, 2013. "The Behavior of Individual Investors," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1533-1570, Elsevier.
    14. Jarkko Peltomäki & Jukka Sihvonen & Steve Swidler & Sami Vähämaa, 2021. "Age, gender, and risk‐taking: Evidence from the S&P 1500 executives and market‐based measures of firm risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1988-2014, October.
    15. Czibor, Eszter & Claussen, Jörg & van Praag, Mirjam, 2019. "Women in a men’s world: Risk taking in an online card game community," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 62-89.
    16. Caliendo, Frank & Huang, Kevin X.D., 2008. "Overconfidence and consumption over the life cycle," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1347-1369, December.
    17. Oliver Gloede & Lukas Menkhoff, 2014. "Financial Professionals' Overconfidence: Is It Experience, Function, or Attitude?," European Financial Management, European Financial Management Association, vol. 20(2), pages 236-269, March.
    18. D’Hondt, Catherine & De Winne, Rudy & Merli, Maxime, 2021. "Do retail investors bite off more than they can chew? A close look at their return objectives," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 879-902.
    19. Liu, Hongqi & Peng, Cameron & Xiong, Wei A. & Xiong, Wei, 2022. "Taming the bias zoo," Journal of Financial Economics, Elsevier, vol. 143(2), pages 716-741.
    20. Mushinada, Venkata Narasimha Chary, 2020. "Are individual investors irrational or adaptive to market dynamics?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 25(C).

    More about this item

    Keywords

    Overconfidence; Gender difference; Financial literacy; Household finance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001547. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.