Financial fraud is a prevailing issue in developing countries. We study how investors are exploited by too-high-to-be-true financial products using a model in which a fraction of investors is unaware of the possibility of financial fraud. Unaware investors purchase financial products that are inconsistent with their risk attitudes, and their behaviors, in turn, provide an incentive for firms to conduct financial fraud. Reducing the fraction of unaware investor induces firms to behave honestly, and financial fraud disappears if this fraction drops below a certain threshold. With this insight, we experimentally measure investor’s risk attitude, the level of financial literacy, and the effect of an eye-opening financial education program. We also survey subjects’ demographic characteristics. Compared to assigning the education program randomly, targeted education will be more effective. Using the data from our experiments and surveys, we conduct a counterfactual analysis to quantify this effect.
Email: iems@ust.hk
Phone: (852) 3469 2215
Address:
IAS 2018 -2020
Lo Ka Chung Building, Lee Shau Kee Campus
The Hong Kong University of Science and Technology
Clear Water Bay, Kowloon, Hong Kong
Get updates from HKUST IEMS
Please wait...
To complete the subscription process,
please click the link in the email we just sent you.
Oops! Subscription Error,
you should try again.
Confirmation Success. Thank you.