Responsible researcher: Bruno Benevit
Authors: Bryan C McCannon and Jeffrey Peterson
Original title: Born for Finance? Experimental Evidence of the Impact of Finance Education
Intervention Location: United States
Sample Size: 146 students
Sector: Education
Variable of Main Interest: Prosocial behavior
Type of Intervention: Finance education
Summary
Several studies seek to identify the effects of finance education on student behavior. However, the distinction between possible causality and selection effects of students who opt for this type of education presents a challenge for such inference. In this sense, this article carried out an investment decision experiment to investigate the impact of finance education on students' prosocial investment conduct, differentiating the intervention effect from the self-selection effects of finance students. Using various econometric methods, the authors identified that students who choose to study finance have a predisposition towards non-reciprocity in investments, while financial education promotes the development of pro-social behaviors, trust, and social choices that generate wealth.
As finance education provides new information, addressing topics such as wealth creation and the consequences of risk, contact with such content can significantly influence individuals' behavior in a particular way. Thus, the conduct of students in this type of course in relation to social preferences and values of trust and reciprocity can be shaped.
At the same time, it is natural to assume that the decision to study finance involves an endogenous selection, so that individuals who choose to study finance have a profile with specific pre-established values before contact with this type of education. In this context, it becomes relevant to understand how these students' behavior is shaped by education in finance and the average profile of those who self-select this type of education, as well as the differentiation between these two factors in the behavior of these students.
Research on the relationship between financial knowledge and social behavior is limited. Although several studies indicate the impact of education in finance on personal investment decisions (savings, risk and debt), few studies have analyzed the impacts on social interactions in the private, non-professional sphere (McCannon and Peterson, 2015).
Regarding evidence related to student behavior, Meier and Frey (2004) identify that finance students tend to make fewer charitable donations. According to Allgood et al. (2012), individuals with a specialization in finance are more likely to join the Republican Party, are less likely to perform volunteer work, and contribute fewer hours when they do so. However, both studies do not establish a clear causal relationship, highlighting the gap in the literature related to the topic.
Experiments were conducted with college students at a private university in upstate New York to analyze the relationship between financial knowledge and behavior. The recruited participants were part of two groups: students in general education classes and students whose main course ( major ) was finance. Additionally, aiming to select students who have not had contact with finance subjects and those who have already had contact with these subjects, we sought to select both students from the first year of university, as well as students from subsequent years.
The first experiment used the Trust Game, in which participants were randomly paired and one was designated as "Player A" and the other as "Player B". Player A received 5 trial dollars and chose how much to give (“invest”) to Player B (0, 1, 2, 3, 4, or 5 dollars), knowing that any amount would be tripled for Player B, who could later choose for giving back to Player A. The experiments were carried out in separate sessions, varying the number of game rounds, random pairing, and presentation of instructions. To avoid biases due to gender, race, or other factors, participants' decisions were made without knowledge of their playing partner and previous sessions. Before the experiment began, players were informed that they would receive more real dollars as they received more experimental dollars at the end of all rounds.
Furthermore, participants played the Dictator Game, where Player A decides how much to give to Player B, without the possibility of return from the latter, allowing the control of altruistic preferences and the differentiation between altruistic donations and strategic investment.
To verify the relationship between education in finance and prosocial behaviors, the authors adopted an OLS model to estimate the amount invested by players A to players B. To correctly identify the impact of education in finance, binary variables were considered to identify separately the effect associated with first-year students, finance students, and first-year finance students. The models considered covariates identifying origin (residents of New York and the United States), gender, voting, business students, and identification of the game's dictator. Additionally, regressions of two new models were carried out considering the amount received reciprocally from Player B and the fixed effects of the game rounds.
Subsequently, the same OLS procedure was carried out to estimate the amount returned reciprocally by players B to players A, adopting two models: with and without fixed effects of the game rounds. Finally, the study used the Probit method to estimate the probability of players A investing in players B the amount of 0 and 5 experimental dollars. Similarly, the probability was also estimated that players B, if they had received 5 dollars from player A, would reciprocally donate at least the amount of 5 experimental dollars to players A. In the vector of covariates, the same aspects as in the OLS models were controlled.
The results of the OLS regressions indicated self-selection of finance students. For both outcome variables, amount invested and amount reciprocally returned, the isolated effect of first-year finance students indicated less altruistic behaviors, investing and reciprocally returning fewer experimental dollars.
In the opposite direction, the isolated effect of education in finance resulted in an increase in the propensity to invest and return reciprocally. In both outcome variables, no significant effects were found for first-year students, reinforcing the hypothesis of self-selection of finance students when considering the isolated effect for this group.
Regarding the Probit model estimates, the results corroborated the previously found evidence. The effects associated with being a first-year finance student indicated a reduction in prosocial behaviors, showing significant reductions in the probabilities of investing 5 experimental dollars and reciprocally returning at least 5 experimental dollars, in addition to showing a significant increase in the probability of investing 0 dollars experimental. Again, contact with financial education showed an increase in altruistic behaviors when considering the three outcome variables.
This article verified whether finance education promotes individualistic behaviors in the social behavior of its students. To this end, experiments were conducted with students from a private university in the United States with the aim of observing pro-social behavior in a reciprocal investment-donation simulation between two players.
Using econometric methods, the results found indicated that individuals who choose finance as their main course have less altruistic behavior. However, financial education promoted pro-social behaviors, inducing wealth-generating behaviors. Individuals with training in the area were more likely to offer investments that generate wealth, make larger investments, reciprocate investments and provide more significant reciprocal returns to investors. This evidence provides new information for finance and business regulators and education policy makers.
References
ALLGOOD, S. et al. Is Economics Coursework, or Majoring in Economics, Associated with Different Civic Behaviors? The Journal of Economic Education , vol. 43, no. 3, p. 248–268, Jul. 2012.
MCCANNON, BC; PETERSON, J. Born for Finance? Experimental Evidence of the Impact of Finance Education. Journal of Behavioral Finance , vol. 16, no. 3, p. 199–205, 3 Jul. 2015.
MEIER, S.; FREY, BS Do Business Students Make Good Citizens? International Journal of the Economics of Business , vol. 11, no. 2, p. 141–163, Jul. 2004.
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