data-KPRG(1002,wideMDL)

Description

This study puts forth the theoretical prediction that two types of overconfidence, misestimation and misplacement are positively correlated and empirically tests this prediction using financial literacy data. The survey, which included a financial literacy questionnaire, was administered to South Korean adults aged 20 and older from June to September 2018 using random digit dialing. An observation is obtained when a professional survey company dials a randomly generated mobile phone number, texts a survey to the phone, and the recipient responds to the survey. The questionnaire asks a respondent, "Compared to the average person, how do you think your financial literacy level is?" and asks the respondent to select one of the following responses: worse than average (WTA), around average (AVRG), or better than average (BTA). The self-assessed financial literacy compared to the group average will be referred to hereafter as the “comparison belief.” Respondents respond to the evaluation of comparison belief prior to the actual financial literacy assessment. The assessment tool for measuring actual financial literacy is a test sheet consisting of 10 financial literacy questions in a 4-way multiple-choice format with one correct answer. The 10 questions measuring financial literacy consist of the types and characteristics of financial instruments such as bank deposits, stocks, and bonds, loan rates and terms, managing personal credit, calculating compound interest, inflation and real interest rates, and the effects of monetary policy. The score a respondent gained by completing the test paper (hereafter referred to as the “actual score”) is determined by awarding one point for each question answered correctly, for a total of 10 points. For each individual item measuring financial literacy, respondents record their answer and indicate the degree to which they are confident that their answer is the correct one by selecting one of the following four-point Likert scales: I don’t know at all, half and half, almost certainly, or definitely certainly. We operationally define the total number of items for which the respondent answered “almost certainly” or “definitely certainly” as the respondent's self-assessed predicted score (hereafter referred to as “predicted score”). A respondent's misestimation measure is operationally defined as the difference between his/her predicted score and his/her actual score. WTA and BTA per se do not imply underplacement and overplacement, respectively. If respondents rate themselves as BTA and their actual performance aligns with this belief, it is not overplacement but a correct assessment. Overplacement occurs when individuals rate themselves as BTA despite that they are not. Likewise, underplacement happens when individuals rate themselves as WTA despite that they are not. When the comparison belief matches the actual level, it is not a misplacement but rather an exact placement.

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