Assistant Professor, Department of Management Studies, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi, India. sushmita.bhu@sscbsdu.ac.in, sushmita.bhu@gmail.co
Online published on 31 May, 2018.
The gaps in financial literacy are arguably responsible for significant errors in decision-making by consumers and investors alike. While conventional economics, with its simplistic assumptions and a disregard for the human psyche, has failed to convincingly explain the well documented gaps in financial literacy and the related errors in financial decision-making, the theories of behavioral economics have been seen to provide explanations and possible solutions to the problems that relate to the gaps in financial literacy.
As opposed to the conventional neoclassical economic theories, behavioral economics analyses the significance of financial literacy for decision-making. This paper aims to analyze the preconceived notions or biases that influence decision making of individuals which often results in errors being made and how financial literacy can help combat this issue.
Financial literacy, behavioral economics, bounded rationality, errors and biases, overconfidence, herding, anchoring
