nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2018‒04‒16
two papers chosen by

  1. Exponential-growth bias and overconfidence By Levy, Matthew R.; Tasoff, Joshua
  2. Digital Innovations in Public Finance: An Efficient Use of Resources By Chakraborty, Lekha; Agarwal, Samiksha

  1. By: Levy, Matthew R.; Tasoff, Joshua
    Abstract: There is increasing evidence that people underestimate the magnitude of compounding interest. However, if people were aware of their inability to make such calculations they should demand services to ameliorate the consequences of such deficiencies. In a laboratory experiment, we find that people exhibit substantial exponential-growth bias but, more importantly, that they are overconfident in their ability to answer questions that involve exponential growth. They also exhibit overconfidence in their ability to use a spreadsheet to answer these questions. This evidence explains why a market solution to exponential-growth bias has not been forthcoming. Biased individuals have suboptimally low demand for tools and services that could improve their financial decisions.
    Keywords: Exponential-growth bias; Overconfidence; Financial literacy; Overestimation; Overprecision
    JEL: D14 D18
    Date: 2017–02–01
  2. By: Chakraborty, Lekha; Agarwal, Samiksha
    Abstract: Digital innovations in fiscal policy is the du jour for the macro policy makers, especially in the post-demonetisation India. India showcases the early three experiments of digitization in public finance – especially financial inclusion through digital financial services - in the recent Economic Survey. It highlights that digitization in public finance helped the government to identify the beneficiaries correctly given the technology it uses. It also helped in the removal of ghost beneficiaries and thus plugged leakages and identification errors. An early figure suggests that digitization in public finances in India has helped to transfer the benefits of welfare programmes to extent of 41% in MGNREGS, 37% in PAHAL (the LPG subsidy scheme), 14% in National Social Assistance Program(NSAP) and 7% in national scholarship schemes.(Economic Survey of India, 2015-16). Yet another successful experiment in digitization of fiscal policy is the new scheme, Pradhan Mantri Jan Dhan Yojana. It has ensured financial inclusion in financial services through opening savings accounts by the masses so that the money is transferred to the genuine beneficiaries. Another related experiment has been the introduction of Aadhaar cards which provides a unique online identity to each individual in the country and has been linked to bank accounts and mobile numbers in order to ease transactions. Greater use of mobile banking to transfer funds faster and to solve the last mile banking problem has also been encouraged. The use of Jan Dhan accounts, Aadhaar cards and Mobile Banking has helped India take a step closer to the digital revolution that awaits it. Such global experiments of digitization in finance have happened in Kenya, where geospatial surveys were used to decipher how much financial institutions have responded to an increasingly digitizing environment.
    Keywords: digital infrastructure , financial inclusion, Aadhar
    JEL: E26 E44 E52 H30 H61
    Date: 2018

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.