Financial Literacy Overconfidence, Risk Perception And Financial Investment

Cognition is the most basic psychological process of human beings,including the cognition of behavior subject and object.Financial investment is an event featured with high-density information and high-level risk,so financial cognition process includes investors’ perception of their information processing capability and their perception of financial risk.A large body of empirical evidence shows that investors are mostly characterized by overconfidence in their own abilities and underestimation of financial risks.Starting from the cognitive bias of bounded rational investors,this paper breaks the“rational economic man”hypothesis,and uses the variable of financial literacy overconfidence to study the impact of self-awareness bias on financial investment.Based on traditional risk-related variables such as risk appetite,risk perception is then introduced as the bias of object cognition to study its influence on financial investment,and after finding the possible connection between financial literacy overconfidence and risk perception,the mediating effect of risk perception in the whole impact mechanism is explored.In empirical work,the data of China Family Panel Studies(CFPS)in 2014 are used to analyze the effects of financial literacy over-confidence and risk perception on financial market participation probability,participation depth,and investment return,using the Logit and Tobit model,Heckman twostage model and so on.The results firstly show that financial literacy overconfidence significantly increases the probability of financial market participation,and is positively correlated with financial market participation depth,while the significance of this impact mainly comes from overconfidence on advanced financial literacy;the impact of financial literacy overconfidence on investment yield is affected by objective financial literacy,which is negative for low objective financial literacy group,and vice versa for the high.Secondly,financial literacy overconfidence significantly makes people underestimate the financial investment risk,and risk perception plays a mediating role in the mechanism of financial literacy overconfidence’s influence on financial market participation probability and depth.Therefore,suggestions are as follow: On the one hand,objective knowledge promotion and consumer financial literacy questionnaires are suggested to help residents to enhance their self-cognitive ability,on the other hand,financial education should be popularized to improve residents’ ability to identify,judge and analyze risks,and help them form reasonable risk perception.Finally,in the process of policy formulation and financial investment guidance,the heterogeneity of different investors,and their possible psychological weaknesses and cognitive misunderstandings should be fully considered.