Financial capability, a behavioral economics perspective

Financial capability involves knowledge and skills, but attempts to improve these may not lead to better outcomes. What people choose to know and what they do with their knowledge may primarily depend on their intrinsic psychological attributes. Behavioural economics has identified a collection of deep seated cognitive biases that influence decisions in both financial and non-financial contexts. There is considerable evidence that these factors are present, though how widespread they are remains controversial. The empirical work is often situated in contexts other than personal finance but there is no reason to think the biases are domain specific. (FSA, 2008)

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