Empirical evidence shows that entrepreneurs on average do not earn more than paid employees in terms of the net present value (NPV). One natural question is what makes the entrepreneurs to stay in business. To address this question, we propose a continuous time real options model in which an...

This paper studies the effects of heterogeneity in planning propensity on wealth inequality and asset prices. I consider an economy populated by "attentive" and "inattentive" agents. Attentive agents plan their consumption period by period, while inattentive agents plan every other period....

We study how risk aversion affects precautionary savings when considering monotone recursive Kreps-Porteus preferences. In a general infinite-horizon setting, we prove that risk aversion unambiguously increases precautionary savings. The result is derived without specifying income uncertainty,...

I propose an intertemporal precautionary-saving model in which the agent's labor income is subject to both permanent and transitory shocks. However, he only observes his total income, not individual components. I show that partial observability of individual components of income gives rise to...

According to Heath and Tversky (1991), people are more willing to bet on their own judgments in areas where they consider themselves more knowledgeable or competent. We analyze the competence effect in the context of individuals' choices in their own pension accounts. We find that individuals...

We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for...

Diversification is a fundamental concept in economics, decision theory and finance. It also lies at the core of the Darwinian evolution argument, and diversifying behavior known as bet-hedging has been widely documented in other species. The central premise of this paper is that attitudes...

Using data from a U.S. household survey, we examine the empirical relation between subjective life horizon (i.e., the self-reported expectation of remaining life span) and portfolio choice. We find that equity portfolio shares are higher for investors with longer horizons, controlling for...

Many of us understand the ability to read or write also within the term of financial literacy (Zarcadoolas, Pleasan & Greer 2006). But we may see the numbers of areas in which people show functional literacy, for example cultural literacy, emotional, media, financial, health literacy and so on....

We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. In...