Working Paper 117/11

FINANCIAL LITERACY AND THE DEMAND FOR FINANCIAL

ADVICE
Riccardo Calcagno
Chiara Monticone
 Financial Literacy and the
Demand for Financial Advice∗
Riccardo Calcagno† Chiara Monticone‡

April 13, 2011

Abstract
The low level of financial literacy in many countries suggests that
households are at risk of sub-optimal financial decisions. In this paper
we assess to what extent financial advisors can substitute for such a
lack of knowledge, by analyzing the effect of investors’ financial liter-
acy on their decision about how much to rely on financial advisors.
We model the strategic interaction between poorly informed investors
and perfectly informed advisors facing conflicts of interest. We find
that more knowledgeable investors are more likely to consult advisors,
while less informed ones either invest by themselves (without any pro-
fessional advice) or delegate their portfolio choice, suffering the agency
costs of such decision. These results are confirmed empirically, where
we investigate the effect of financial literacy on the demand for finan-
cial advice using the 2007 Unicredit Customers’ Survey. Overall, our
results suggest that non-independent advisors are not sufficient to al-
leviate the problem of low financial literacy.

∗
We would like to thank Elsa Fornero, Andrea Buffa, Erwan Morellec, Giovanna Nico-
dano, Marco Ottaviani, Mario Padula, Gilberto Turati, Efrem Castelnuovo and partici-
pants to the XVIII International Tor Vergata Conference on Money, Banking and Finance
(Rome, December 2009), the Annual International Conference on Macroeconomic Analysis
and International Finance (Crete, May 2010), the II SAVE Conference (Deidesheim, June
2010), the III Italian Doctoral Workshop in Economics and Policy Analysis (Moncalieri,
July 2010), the 51st Annual Conference of the Italian Economists’ Society (Catania, Oc-
tober 2010), and the XIX International Tor Vergata Conference on Money, Banking and
Finance (Rome, December 2010) for useful comments and suggestions. Moreover, we wish
to thank Laura Marzorati at Pioneer Investments for providing access to the Unicredit
Customers’ Survey. We kindly acknowledge financial support from CeRP/Collegio Carlo
Alberto and MIUR (PRIN 2008).
†
EM Lyon Business School and CeRP/Collegio Carlo Alberto.
‡
University of Torino, CeRP/Collegio Carlo Alberto and Netspar.

1
1 Introduction
The growing literature on financial literacy suggests that consumers’ knowl-
edge of basic financial principles and products is quite scarce, and that
it may not be sufficient to guarantee that households make sound finan-
cial decisions. For instance, more financially illiterate households are more
prone to lack of planning for retirement, portfolio under-diversification, and
over-indebtedness (Guiso and Jappelli, 2008; Kimball and Shumway, 2007;
Lusardi and Mitchell, 2006, 2007; Lusardi and Tufano, 2009).
One may argue that a low level of households’ financial literacy does not
necessarily imply that they will make poor financial decisions. At least in
principle, households can seek advice and guidance from qualified sources.
As long as households can resort to the advice of experts for their finan-
cial decisions, external advice can be seen as a substitute for learning by
one’s self, thus avoiding the effort of acquiring financial expertise. Indeed,
common motivations for the demand for professional financial advice are
that advisors are more knowledgeable about financial markets than non-
professional investors (e.g., because they can exploit economies of scale in
information acquisition), and that they can mitigate households’ behavioral
biases.
However, there are reasons to believe that the market for financial ad-
vice is imperfect and that the mere availability of qualified assistance will
not necessarily translate into high-quality decision making. Not only ad-
visors/brokers do not appear to fully correct investors’ behavioral biases
(Shapira and Venezia, 2001; Mullainathan et al., 2010), but it is evident
that conflicts of interest may affect the supply of financial advice. When
financial intermediaries are at the same time acting as advisors and selling
financial products, they may be tempted of “misselling”, i.e., selling a prod-
uct that does not match a customer’s specific needs (European Commission,
2009). Even more worryingly, consumers’ ignorance may be exploited in re-
tail financial markets as a source of market power by firms that increase the
complexity of their financial products strategically (Carlin, 2009).
When looking at the consumers’ side, it does not appear that advice
is demanded in substitution for financial knowledge. Various authors sug-
gested that formal sources of information and advice, including financial
advisors, tend to be used by investors with higher financial literacy, while
‘illiterate’ ones prefer informal sources, such as friends, relatives, colleagues
and neighbors (Lusardi and Mitchell, 2006; van Rooij et al., 2011). More-
over, Hackethal et al. (2009) show that advisors are matched with wealthier
and older investors, rather than with poorer and inexperienced ones, sug-
gesting that there may be a complementarity between financial knowledge
and the demand for advice.
In this paper we assess to what extent financial advisors can substitute
for a lack of financial knowledge. To do so, we analyze both theoretically

2
and empirically the effect of investors’ financial knowledge on their decision
about whether to invest autonomously, to ask for advice to a professional,
or to delegate. First, we model the effect of investors’ financial knowledge
both on the advisors’ decision about the informativeness of their recommen-
dations, and on investors’ choices about whether and how much to rely on
advisors. Second, we analyze empirically the role of financial literacy on
the demand for financial advice, studying which investors seek professional
financial advice and to what extent they rely on it. We use the 2007 Uni-
credit Customers Survey, a representative sample of customers of one of the
largest Italian banks.
In the theoretical framework we model the strategic interaction between
an advisor/intermediary and an investor, where the customer is imperfectly
informed about the risky asset future return while the advisor knows it
perfectly. At the same time, the advisor earns a commission upon selling
the risky product and faces a cost for misselling it (e.g. costs related to a
loss of reputation or expected legal costs for being sued). The final utilities
of both advisor and investor depend upon the investment decision of the
latter. With respect to the previous literature on advice, we exploit the
heterogeneity of investor’s financial knowledge in affecting the degree of
information transmission in equilibrium. We show that it is more profitable
for advisors not to reveal the information they possess when investors are
less knowledgeable. This implies that – if we allow investors to be fully
rational and to observe the structure of advisor’s selling incentives – advisors
are visited only by the most knowledgeable customers, while less informed
investors either invest completely by themselves (without any professional
advice) or they delegate fully their portfolio choice.
In the empirical analysis we estimate the impact of investors’ financial
literacy (objectively measured by means of tests) on their choice between
investing autonomously, asking for advice to professionals, or delegating
their portfolio choice to them. The results indicate that, even controlling
for a number of factors such as trust towards one’s advisor, self-confidence in
own financial ability, wealth and opportunity cost of time, financial literacy
increases the probability of consulting the advisor, while at the same time
it reduces that of investing autonomously or delegating.
Overall, our results suggest that the presence of non-independent advi-
sors, who at the same time provide advice and sell financial assets, does
little to alleviate the problem of low financial literacy of some investors. In-
deed, our model and our empirical investigation show that these advisors
are rarely relied upon by low financial literacy investors, who need advice
the most. We conclude then that there is scope for various types of inter-
ventions, including financial literacy initiatives targeted to the population
groups with the highest private costs of accessing financial knowledge, and
for rules that reduce conflicts of interests between clients and intermediaries
and that subsidize the development of independent advisors.

3
 The rest of the paper is organized as follows. Section 2 reviews the rel-
evant literature. Section 3 presents the model setup and characterizes both
advisor’s decision about information revelation and investor’s choice about
delegating to or consulting an advisor. Section 4 introduces the empirical
analysis, presenting the dataset, the empirical strategy and the main re-
sults. Separate subsections perform robustness checks and discuss the issue
of potential financial literacy endogeneity. Section 5 concludes.

2 Background
2.1 Models of financial advice
Several authors studied the issue of advisors’ conflicts of interests in a strate-
gic communication setting, modeling the interaction between an uninformed
investor and an informed advisor whose preferences are ‘biased’ towards a
partisan objective (e.g. through commissions and ‘kickbacks’). Following
the classic ‘cheap-talk’ communication game of Crawford and Sobel (1982),
other works focussed on the origins of these conflicts. While in most cases
the bias is simply assumed, Inderst and Ottaviani (2009) allow the conflict of
interest between the advisor and the investor to arise endogenously from the
agency relation between the advisor and the firm, which aims at setting the
optimal compensation so as to induce its direct marketing agent to sell but
not to missell. In Krausz and Paroush (2002) and Bolton et al. (2007) the
bias of intermediaries providing advice is related to market competitiveness.
For our purposes, a particularly relevant strand of this literature is the
one focusing on investors’ characteristics and on how these affect information
transmission. Ottaviani (2000) allows investors to differ with respect to
their degree of strategic sophistication and shows that the nature of the
communication in equilibrium changes drastically according to investor’s
naivety. Georgarakos and Inderst (2010) allow investors’ decision to rely on
advisor’s recommendation to depend on the perception of their own financial
capability, as well as on their perceived legal protection and trust in advice.
Finally, Hackethal et al. (2010) introduce investors’ knowledge of financial
matters and their perception of advisor’s conflict of interest in a game of
cheap talk, with both elements reducing the likelihood that the customer
follows advisor’s recommendation.1
1
Note that our work differs from that of Hackethal et al. (2010). They assume that
the customer has to decide whether to follow advisor’s recommendations or not upon
receiving them, and they focus on the informative equilibrium only. On the contrary,
in our model we exploit the different informativeness of the equilibria, and we focus on
investor’s decision on whether to visit the advisor or not, since it is always (never) optimal
for the investor to follow the advice when this is (not) informative.

4
2.2 Financial literacy and financial advice
As financially literate investors have a better understanding of financial
products and concepts, one might expect them to have an easier access
to financial markets, suggesting that they may have a lower need for finan-
cial advisors. Financial knowledge can be interpreted as a way to reduce
participation costs, since it has to do with “understanding basic investment
principles as well as acquiring enough information about risks and returns
to determine the household’s optimal mix between stocks and riskless as-
sets” (Vissing-Jorgensen, 2004, p. 179), which is typically identified as one
of the main costs to stock market participation. van Rooij et al. (2011)
show that financial literacy is related to higher stock market participation
among Dutch households. If financial literacy increases stock market partic-
ipation, then it may also increase the probability of investing autonomously
and having less of a need for external support.
However, much of the existing empirical literature (in addition to the
theoretical predictions of section 3) suggests the opposite, i.e. that advice is
demanded by knowledgeable investors and not by financially illiterate ones.
The (mainly descriptive) evidence on financial literacy suggests that it
may affect the choice of financial advisors and information sources (Bern-
heim, 1998). Lusardi and Mitchell (2006) show that individuals who are
correct about three financial literacy questions tend to use formal tools for
retirement planning (attend retirement seminar; use calculator/worksheet;
consult a financial planner) rather than informal ones (talk to family, friends,
coworkers). At the same time, those who used more sophisticated tools were
always more likely to get the literacy questions right, as compared to those
who relied on personal communications. Similar evidence is found in the
Netherlands, where those who display high levels of basic and advanced
financial literacy are less likely to rely on informal sources of information
(family, friends) and are more likely to rely on formal sources (read newspa-
pers, consult financial advisors, and seek information on the internet) (van
Rooij et al., 2011).2 Moreover, Hackethal et al. (2009) show that advisors
are matched with wealthier and older investors, rather than with poorer
and inexperienced ones, suggesting that the demand for advice might be a
complement rather than a substitute to financial literacy.
Finally, the idea that advice is demanded by more knowledgeable in-
2
One may argue that also ‘formal’ sources may act misleadingly, and that not neces-
sarily resorting to them is a guarantee of sound financial decisions. For instance, investors
may follow unscrupulous financial ‘gurus’, or use unreliable internet advisory websites and
financial press. However, these sources are still more likely to provide valuable information
than non-professional sources, such as friends, neighbors and relatives. This can be the
case especially if individuals pair with similar people in terms of education and financial
literacy (i.e, if low financial literacy investors have low financial literacy friends), and if
investment knowledge is shared through social interaction with peers (Hong et al., 2004;
Duflo and Saez, 2002).

5
vestors is shared also by the psychological research. This literature points
to the fact that individuals who do not know much about (any) subject
tend not to recognize their ignorance, and so fail to seek better informa-
tion. Relatively less knowledgeable people are more likely to overestimate
their abilities and as a consequence of their incompetence they also lack the
metacognitive ability to realize it (Kruger and Dunning, 1999). This effect
appears to be there also in the financial domain (Forbes and Kara, 2010).

3 The model
3.1 Setup
There are two agents: an intermediary who at the same time sells a risky
financial product and provides advice to customers and an investor who
decides how much of his wealth to invest in the risky product. We will refer
to these agents respectively as the intermediary S (seller) and the investor
B (buyer).
The interaction between the two agents involves decisions by both par-
ties. The buyer B decides whether to delegate or not the portfolio choice
to the seller. In case B delegates to S her portfolio choice, then S is free
to acquire on her behalf any amount of the risky asset (compatible with the
wealth of B). In case B does not delegate, she chooses how to invest her
portfolio based on her information set, where this information set depends
on whether she decides to ask for the seller’s advice, or not. If he is asked
for advice, the seller S decides whether to reveal or not the information he
possesses through a message σS . We now review these decision processes
and their timing more in detail.
The buyer decides how to optimally allocate her initial wealth W0 be-
tween a risky and a riskless asset. We normalize the riskfree return rf to
zero. Her initial (i.e. t = 0) distribution of the risky asset payoff r̃ is

rH 1/2
f (r̃) = (1)
rL 1/2

We assume that rH > 0, rL < 0 and 12 rH + 21 rL > 0 in order to depict a

situation where B may incur real losses in case of an ill investment decision,
but where the risky asset ex-ante provides an excess return over the riskless
one.3
At t = 0, before undertaking the investment, the buyer obtains an in-
formative signal si with (exogenous) precision π. The signal is correct with
3
This means that we are restricting the analysis to those products that an uninformed,
risk-neutral agent would buy. One can think of these risky assets as being sufficiently
known among the large public, or assets whose historical past returns are above the
riskfree rate, such as index funds.

6
probability π = P r(si = ri |ri ) > 1/2. For instance, if B receives the signal
si = rL , she bases her decisions upon E[r̃|si = rL ] = πrL + (1 − π)rH . We
interpret the information precision π as a proxy for the investor’s degree of
financial literacy, since a more financially educated B has access to a more
precise information signal.4
Given that rL < 0 and Ef (r̃) [r̃] > 0, when si = rL there is a level
π0 ∈ [1/2, 1] such that π0 rL + (1 − π0 )rH = 0. The seller knows exactly the
realization of r̃ since the initial date t = 0.
The buyer is assumed to have mean-variance utility over her final wealth
W3 . Given any information set IB , the investment decision of B then
amounts to

γ
max E[U (W3 ) |IB ] = E[W3 |IB ] − V ar[W3 |IB ]
v∈[0,1] 2
s.t. W3 = W0 + vr̃

where v is the quota of initial wealth she invests in the risky asset5 and
rf = 0. Given the distribution of returns in (1) and B’s information set IB ,
her optimal investment in the risky asset is:
(
E[r̃|IB ]
if v > 0
v∗ = γV ar[r̃|IB ] (2)
0 if v ≤ 0

In case the optimal portfolio v ∗ resulting from (2) were negative, then we
fix v ∗ = 0, since we assume that the buyer faces short-selling constraints.6
Substituting for v ∗ in the objective function we obtain the ex-ante expected
utility for the buyer B:
(
1 (E[r̃|IB ])2
2 if v > 0
E[U (W3 ) |IB ] = W0 + γV ar[r̃|IB ] (3)
0 if v ≤ 0
At t = 1, after receiving the signal si , the buyer chooses whether to
delegate her portfolio choice to the seller or not. When she delegates, she
forgoes the possibility to choose the optimal investment in the risky asset
by herself.
If the buyer decides not to delegate her portfolio choice, at t = 2 she has
two options: she can either (i) ask for further information about the future
4
In a previous version of the paper we formalized this relation assuming that the
precision π is endogenous and the cost to acquire information with precision π is equal to
c(π, k), a convex cost function depending on the individual level of financial literacy k. It
is easy to show that under some regularity assumptions, investors with higher k choose
more precise signals, coeteris paribus.
5
It is well known that with CARA utility the optimal portfolio allocation is independent
of the initial wealth, that we then normalize to one for simplicity.
6
This assumption is reasonable for most of private investors trading standard assets as
index funds, mutual funds and individual stocks.

7
realization of r̃ to intermediary S; or, (ii) choose the optimal portfolio using
only the information contained in the signal si . If B asks for information to
S, in the following we say that she asks for advice. If asked for advice, the
seller can, in turn, decide to reveal his information or not through a message
σS , based on the incentives and the costs he faces in doing this.
The seller’s payoff depends on the buyer’s investment decision and con-
sists in a fixed commission F > 0 paid upon completing a sale with B, i.e.
whenever v ∗ > 0. Moreover, S pays a penalty for misselling (as in Inderst
and Ottaviani 2009), representing “reputational costs”, expected legal costs
for litigation procedures, or the monetary costs of forgone customers, among
others. In particular, we assume that this cost is incurred with probability
one whenever the message σS does not correspond to the true state, and
that the cost is proportional to the difference between the action and the
true state [σ(ri ) − ri ]2 .7 The seller’s payoff is then

US (ri ) = F|{v∗ >0} − [σ(ri ) − ri ]2

In order to restrict the the analysis to a meaningful set of parameters,

we impose the following assumption on the seller’s commission F .
2
H −rL )
Assumption 1: (rH − rL )2 < F < (r(1−π 0 ) .
By imposing that seller’s incentives are larger than the cost of lying we
ensure that sometimes it may be optimal for S not to tell the truth if he is
asked advice. The second condition in Assumption 1 ensures that the seller’s
incentives are not too large to always offset the cost for not telling the truth,
even when the buyer is relatively well informed, i.e. for π ∈ [π0 , 1].
Assumption 1 also implies that in case B delegates her portfolio choice,
then S always buys a positive amount of the risky asset even if he knows
that the negative return r̃ = rL will realize, because the positive fee F he
gains upon performing a sale of the risky asset exceeds the reputational cost
(rH − rL )2 .
Summarizing, the timing of the model is the following (see Figure 1).
At t = 0 the investor obtains a signal si about the risky asset’s return
with a given precision π, representing her degree of financial literacy. At
t = 1 the buyer decides whether to delegate or not. If she did not delegate,
then at t = 2 she chooses whether to invest on her own (i.e. using only the
information contained in the signal si ) or to consult the seller who knows the
realized risky asset return.8 If at t = 2 B decides to ask for advice to S, then
they interact in a communication game where the advisor decides whether
to disclose his information or not. Then the buyer chooses her portfolio on
7
Results are qualitatively not dependent on this particular assumption on the cost
function.
8
This timing assumption is made for sake of exposition: the final results would be
similar if the decision to delegate or not is taken after observing the signal realization (see
the proof of Lemma 3).

8
the basis of the whole information set available to her, including the seller’s
message. Otherwise, if at t = 2 the buyer decides not to ask for advice, then
she invests by herself, only on the basis of her signal si . At final date t = 3
the return r̃ is realized.
In the next subsection we start solving the communication game between
the seller and the buyer arising at t = 2 in case the investor decided to
demand his advice.

3.2 Advisor’s decision about information revelation

We start by analyzing period t = 2, in the case B did not delegate the
portfolio choice to S and decided to ask his advice; in this case S and B
play a communication game that we denote as (S, B)−game. Recall that the
buyer enters this stage having already received a signal si ∈ R = {rH , rL }
with a given precision π. Let us now describe the agents’ information sets,
their strategies and the equilibrium of the game.
Information sets. The seller S knows the true state of r̃: using a standard
terminology we say there are two types of sellers S = {S(rH ), S(rL )}. He
also knows the precision π of the buyer’s signal but not its realization.9 The
buyer knows π, the realization of the signal si and the payoff function of the
seller.
Strategies. The seller decides which signal to deliver given his type. Thus
a strategy for S is a mapping σS : {rH , rL } → 4R. The buyer chooses the
optimal portfolio allocation as in (2), where IB = {π, si , σS }.
Equilibrium. A Perfect Bayesian Nash equilibrium in the communication
game (S, B) is defined by a set of strategies (σS∗ , v ∗ ) and beliefs p = Pr(rH ),
p : R → [0, 1] such that:

(i) for both types S(ri ), ri = {rL , rH }, σS∗ maximizes US (ri ) given the
optimal investment decision of the buyer, v ∗ ;

(ii) the optimal portfolio v ∗ is equal to (2), where the information set is
IB = {π, si , σS∗ };

(iii) the belief distribution (p, 1 − p) is rational and consistent with σS∗ , i.e.
p = Pr(rH |π, si , σS∗ ).

We show that this equilibrium depends on the information set of the

buyer, and precisely on the level of π. In particular, for π ∈ [1/2, π0 ) and in
9
We choose to relax the hypothesis that the seller knows the information contained in
the signal si . However, it would not be unreasonable to assume that the advisor possesses
this piece of information, because intermediaries in the European Union are supposed to
collect information on risk attitudes and prior experience of their customers in order to
comply with the EU Markets in Financial Instruments Directive (MiFID). We proved that
the set of equilibria of the game in this case looks qualitatively as the one presented in
the paper (the proof is available upon request to the authors).

9
the absence of any other signals (i.e., before receiving advisor message σS ),
the buyer would choose to invest a positive amount of wealth in the risky
asset v ∗ > 0 regardless of the signal si = {rH , rL } she received. On the
contrary, for π ∈ [π0 , 1] the buyer’s strategy (irrespective of the message σS )
would be to invest a positive amount of wealth in the risky asset v ∗ > 0 if and
only if si = rH , while she chooses v ∗ = 0 for si = rL . The optimal response
of the seller is different depending on the accuracy of the information owned
by the buyer he faces.

Lemma 1. If Assumption 1 holds, then:

(i) whenever π ∈ [1/2, π0 ) there exists a unique pooling equilibrium (σ ∗ (rH ) =

rH ; σ ∗ (rL ) = rH );

(ii) whenever π ∈ [π0 , 1] there exists a unique fully revealing equilibrium

(σ ∗ (rH ) = rH ; σ ∗ (rL ) = rL ).

Lemma 1 shows that investors with relatively coarse information of their

own do not benefit from the opportunity to consult a professional advisor.
This is because a buyer with π ∈ [1/2, π0 ) assign a low probability to the
event r̃ = rL and so she would choose v ∗ > 0 even if she receives signal
si = rL . As a consequence, seller S(rL ) has no incentives to reveal his true
type, because if he did so the buyer would no longer buy the asset and he
would lose his commission F .
On the other hand, investors entering the game (S, B) with more precise
information do receive extra information when they consult a professional
advisor. This is because the buyer with π ∈ [π0 , 1] is informed enough to
choose v ∗ > 0 when si = rH but not when si = rL . Consequently, S(rL ) has
no incentive to deviate from the fully revealing equilibrium: if he did so he
would still not earn F and he would have to pay the extra cost (rH − rL )2 .
Two insightful implications can be derived from Lemma 1. First, advi-
sors are not useful to the investors who need them the most, because they
fail to be a substitute to learning by one’s self. Given this result, we will
see in the next sub-section that rational investors with a relative coarse in-
formation do not demand advice, even if it has a negligible cost. Second,
financial intermediaries/advisors have a regressive effect on the distribution
of information among investors. They increase the information of the rela-
tively more informed but do not provide any additional information to the
less informed.

3.3 Investor’s decision about consulting an advisor or to in-

vest autonomously
At stage t = 1 the buyer decides whether to delegate her portfolio choice
to the seller or not; if she does not delegate, then at t = 2 she has the

10
choice between consulting the seller S for advice or not, after observing the
realization of the signal si . We start analyzing whether it is optimal for
B to ask for advice, and in the following sub-section we will analyze the
delegation choice.10 A rational buyer correctly anticipates the seller’s be-
havior as outlined in Section 3.2 in case she decides to rely on his advice.
For tractability, we let U = W0 rH be the maximum utility B can attain
investing all her initial wealth W0 in the risky asset when she is sure of the
realization rH .11 Moreover, we assume that there are arbitrarily small advi-
sory fees  ≥ 0. This ensures that our results are robust to the introduction
of a very competitive market for financial advice.
As before, the buyer’s decision depends on the level of the precision π of
her private signal.
Lemma 2. If U is sufficiently large, then
(i) whenever π ∈ [1/2, π0 ) the investor will be indifferent between consult-
ing the advisor or not. For any arbitrarily small cost of advice  she
will choose to invest autonomously (not consult the advisor);
(ii) whenever π ∈ [π0 , 1] the investor will strictly prefer to consult the
advisor.
Lemma 2 shows that, since advisors would provide empty advice to the
least informed investors, the latter rationally do not visit them (as long as
investors know advisors’ incentives F ). As investors are able to anticipate
the informativeness of the advisor’s signal, advisors are consulted only by
sufficiently informed investors who know they will receive meaningful infor-
mation.
This result also directly implies that investors with high signal precision
π ≥ π0 (and high financial literacy), by consulting an advisor, are able to
implement the “first best” investment decision, i.e. the one with complete
information (because they learn the true state of r̃ from the advisor). In-
stead, uninformed investors, by not visiting the advisor, make investment
mistakes and hence suffer from ex-post losses, precisely because they are not
sufficiently informed about the true state.
This in turn bears further implications. First, as far as asset’s market is
concerned, advisors/intermediaries do not eliminate noise trading from the
market. Second, as for asset prices, uninformed investors buy also in ‘bad
times’, hence generating noise.12
10
We break the advice vs. autonomous investment decision from the delegation vs.
no-delegation decisions for ease of exposition, but we would obtain the same results if
we allowed the investor to choose between the three options (delegation vs. advice vs.
autonomous investment) simultaneously.
11
This bound U on utility is finite if the investor cannot borrow at rf to invest in the
risky asset.
12
The opposite, however, does not hold. This may be important to explain asset “bub-
bles”.

11
3.4 The choice of delegation
So far we analyzed buyer’s choice between either investing using only her
own information set (including si ) or doing this using the seller’s advice
(σS ), if she anticipated that σS would add information over the signal si .
In this section we allow B to pre-commit at t = 1 to delegate her portfolio
decision to S before knowing his advice.
The possibility to delegate the portfolio decision is usually available to
any investor and in the literature several reasons why an individual investor
may want to do so are explained, including high opportunity cost of time
(Hackethal et al., 2009), and naivete (Ottaviani, 2000). Our purpose in
this model is to examine whether investors’ choice to delegate or not their
portfolio decision is related with the quality of information they own.
As we said, when the buyer delegates, she forgoes the possibility to
choose whether to invest or not in the risky asset. Since the seller gains
his commission F only upon selling the risky asset, in case of delegation he
will buy a positive amount of it on behalf of the buyer even if he knows
that the negative return r̃ = rL realized. If the buyer has delegated to the
seller the portfolio choice, we assume that in the ‘good state’ r̃ = rH the
choice of the seller coincides with the one the buyer would do if she knew
r̃ = rH realized, so that she obtains U = W0 rH from delegating. However, if
r̃ = rL , given that the seller buys on behalf of the buyer a positive amount
vrdel
L
> 0 of the risky asset, this causes to the buyer an expected loss equal
to U = vrdel r < 0.
L L
For the purposes of this paper, we consider both W0 and vrdel L
as exoge-
nous, that is equivalent to assuming that U (resp. U ) are equal to a given
positive (resp. negative) value. In a more general model with many risky
assets, the investor can choose the optimal allocation of her wealth among
these different assets, hence U may depend on the overall investment oppor-
tunities as well as on the individual investor’s wealth. The negative expected
utility U that the investor suffers delegating the investment choice to the
seller when r̃ = rL is a function of vrdel
L
. In turn, we assume that vrdel
L
depends
on the commission F earned by the seller, the reputation cost he suffers for a
bad investment and possibly other elements (e.g. the wealth of the investor,
the length of the buyer-seller relationship etc...).
The following lemma shows that the delegation choice is again driven
by the precision of the buyer’s information π, with well informed investors
asking and following advisor’s recommendations, and less informed investors
either delegating or investing by themselves.
Lemma 3. If under delegation the advisor buys a positive amount of risky
asset on behalf of the customer for any value of the asset’s return inducing
an expected loss U < 0 to the investor, then:
n o
(i) when π ∈ [1/2, π0 ), for any given EUBself , EUBdel , max EUBself , EUBdel >

12
 EUBadv hence the investor either decides without asking advice or del-
egates the portfolio choice to the seller;

(ii) when π ∈ [π0 , 1], for any U > 0 and U < 0, EUBdel < EUBadv so that
the investor strictly prefers to consult the advisor.

The intuition behind this result is quite simple. For π ∈ [1/2, π0 ) we

already know from Lemma 2 that the utility of asking for advice is at most
the same as investing autonomously, so the investor never consults the ad-
visor, if she decides not to delegate her choice to him. In such a case, the
investor either invests without asking for advice or delegates the portfolio
choice to the intermediary.
For π ∈ [π0 , 1], instead, we know from Lemma 2 that autonomous in-
vestment will not be chosen, since the strategic interaction with the advisor
will result in a fully revealing equilibrium hence a higher utility. It is simple
then to show that the utility from delegating is lower than that of consult-
ing and following the advisor’s recommendations, because the advisor buys
a suboptimal amount vrdel L
> 0 of risky asset if re = rL .
We reported here the results for the case when the delegation decision is
taken after observing the realization of si . However, the final results would
be the same if the decision to delegate or not were taken before observing
the signal realization.
The results of Lemma 3 have similar implications to those of Lemma
2, with one additional element. Most informed investors prefer asking (and
following) advice whether delegation is permitted or not; less informed in-
vestors, however, by having the option to choose delegation ex-ante, risk
severe losses ex-post since they receive a too high allocation of the risky
asset when r̃ = rL .
In the following section we complement the theoretical model with an
empirical analysis of the effect of financial literacy on investors’ demand for
advice, and in particular on their choice between investing autonomously,
consulting advisors or delegating them.

4 Empirical analysis
4.1 Data and descriptives
The Unicredit Customers’ Survey (UCS) is a representative sample of the
customers of one of the largest Italian banks (Unicredit group). Eligible
interviewees are account holders with at least 10,000 euro in the bank at the
end of 2006. The 2007 UCS survey samples 1,686 individuals. Even though
sample selection is based on individual Unicredit customers, the survey has
detailed information on demographic characteristics of all components of
account holders’ households, including their labour market position, income,

13
and household wealth (financial wealth, real assets, insurance policies and
pensions).13 Additionally, the account holder is asked about her relations
with the bank, her attitudes towards investments, and her level of financial
literacy. The only information available based on the bank’s administrative
records is related to financial wealth holdings, while other (potential) pieces
of administrative information – for instance about portfolio allocation, risk
profile, advisors fixed effects, etc. – are not available.
Table 1 describes the construction of the main UCS variables used in
the analysis, and contains description and data sources for the variables not
contained in the Unicredit dataset.
Summary statistics for the variables used in the analysis are reported in
Table 2. Bank customers are on average 55 years old and about one third
are females; 32% are employees, 28% are self-employed and 33% are retired;
they earn an average (total) individual income of 50,000 euro per year and
45% of the sample has been a customer of Unicredit for at least 20 years.
In addition, Table 3 shows a comparison between the UCS and the Bank
of Italy’s Survey on Household Income and Wealth (SHIW), which is a
nationally representative sample. To improve comparability, we selected
three sub-samples from the SHIW: the sample of household heads (because
in the SHIW financial literacy tests are asked only to household heads), the
sample of those who hold an account at a bank or at a post office (because the
UCS only samples account holders), and finally the sub-sample of household
heads who hold a bank/post account. In general, the Unicredit sample is
older, more educated, more likely to live in the North, and with higher family
income. Given that financial literacy is correlated with education, income
and is usually higher in northern regions, it is reasonable to expect the UCS
sample to display higher financial literacy than the SHIW one. However, it
is hard to make financial literacy comparisons. First, it is not possible to
compare single items since tests are different.14 Second, it is not easy to
make comparisons even by looking at the overall performance. On average
UCS respondents report more correct answers, display a considerably lower
number of “do not know”s and a lower fraction of individuals gave zero
correct answers. Nevertheless, in the UCS there is a higher share of incorrect
answers than in the SHIW.
Let us now describe in more detail the main variables used in the anal-
13
Analyzing respondents who are customers of the same bank has advantages and short-
coming. One drawback is that the choice of the bank is certainly not random and it might
be driven by the same factors that affect the extent of reliance on the bank as a source
of advice. This selection, however, cannot be controlled for. Moreover, cross-bank het-
erogeneity cannot be used to explore, for instance, cost effects. On the positive side,
analyzing customers of the same bank reduces unobserved heterogeneity (for instance in
terms the cost and type of advice provided, etc.).
14
The questions about inflation is similar, even though with a slightly different wording.
On this questions the share of correct answers is much higher in the nationally represen-
tative SHIW sample than in the Unicredit one.

14
ysis, namely the extent of reliance on professional advisors (our dependent
variable) and the the level of financial literacy in the UCS (our explanatory
variable of interest).
The rationale for concentrating on relations with intermediaries has to
do with the fact that they represent the main source of financial information
in Italy. Figure 2 reports evidence from a survey of Italian investors’ be-
havior (Beltratti, 2007), showing that banks are the main source of financial
information and advice, both with respect to professional sources of advice
and overall. The same is displayed also in Figure 3 from the UCS, showing
that banks and brokers (promotori finanziari ) are those visited most often,
while friends/ relatives/ colleagues and internet are rarely used (see also
Table 4).15 The preference for intermediaries among professional sources
of advice is in part explained by the fact that the supply of independent
financial advice (fee-based) is very limited in Italy.
As for the extent of reliance on advice from a professional about financial
investments decisions, respondents’ choice is reported in Table 5. About 12%
of the respondents holding risky assets decide completely by themselves, 68%
ask for their banks’s / advisors’ advice before forming their own decisions,
while almost 20% rely mostly or completely on advisors’ indications.
The financial literacy measure is constructed as in Guiso and Jappelli
(2008) and equals the number of correct answers to eight questions on in-
terest, inflation, understanding risk diversification and understanding the
riskiness of various financial products. The wording of the tests is reported
in Table 1 and the answers are displayed in Table 6. The average index
corresponds to 4.7 correct questions out of 8 and less than 1% of the sample
can answer all of them correctly; the overall distribution of correct answers
is displayed in Figure 4.

4.2 Empirical strategy

To assess the impact of financial literacy on the demand for financial advice,
we concentrate on the relation between investors and professional financial
advisors, and analyze the extent of reliance on the latter. As about 6% of
the sample reports that Unicredit is not their main bank, these observations
are dropped from the analysis, and only observations were Unicredit is the
main or only bank are used.
Table 7 reports the financial literacy distribution across degrees of re-
liance on advice, showing that investors choosing an intermediate level of
delegation (i.e., those who ask for the bank/advisor’s opinion before invest-
ing) have higher financial literacy than those on the two extremes (i.e., those
15
In Italy trade unions too can be considered as a source of financial advice, especially
in relation to occupational pension funds. However, we will not consider their role in the
present study, both because the focus here is not on retirement savings and, above all,
because no information about workers’ relations with trade unions is present in the data.

15
either investing by themselves, or fully delegating). To see whether this is
confirmed in a more thorough analysis, we estimate an ordinal response
model of the probability of choosing one of the five possible values.
Since the question about the extent of reliance on advice is asked only
to a sub-sample of the survey (i.e., those who hold risky assets), the relation
is first estimated by ordered probit controlling for the selection bias (see
Table 8). The exclusion restrictions used are risk preferences and a dummy
equal one if the household had zero saving rate, based on the idea that they
affect the propensity to hold risky assets while they are not related to the
frequency of use of any source of advice (e.g., it is not obvious which option is
more ‘risky’ and more likely to be driven by risk aversion). As the selection
is not significant, we proceed with the econometric analysis disregarding the
selection issue.
We then estimate the following generalized ordered probit model of cho-
sen delegation level16

P (Di = 1) = F (−Xβ1 )
P (Di = j) = F (κj − Xβj ) − F (κj−1 − Xβj−1 ), j = 2, ..., J − 1 (4)
P (Di = J) = 1 − F (κJ − XβJ )

where J = 5, and F (·) is the cumulative normal distribution. Explanatory

variables in X include gender, age, years of education, occupational status,
(macro) regions of residence, log individual income, financial wealth cate-
gories,17 experience in trading financial products, whether the respondent
works in the financial sector, length of bank relationship, financial literacy,
self-confidence and trust. Di is the delegation level chosen by individual i,
where:

Di = 1 : investor i decides completely by herself, the bank simply executes

her decisions
Di = 2 : investor i tells the bank/advisor how she intends to invest and asks
their opinion before deciding
16
See Greene and Hensher (2010); Boes and Winkelmann (2006); Terza (1985).
17
Financial wealth (dummies) are based on the bank’s administrative records (indicat-
ing the amount of financial wealth held by the customer at the end of the year 2006)
and are ‘augmented’ with self-reported financial wealth when the self-report exceeds the
administrative information. This is to allow for the possibility that respondents hold
additional financial assets outside their Unicredit account. Basing this variable on ad-
ministrative data corrects the heavy item non-response and under-reporting of the ‘sub-
jective’ financial wealth measure, where about 54% of the sample refuses to indicate in
which range their wealth is included and the remaining respondents who provide an an-
swer often under-report their holdings (i.e., indicate a lower bracket with respect to the
administrative data).

16
Di = 3 : investor i considers bank/advisor’s proposals before deciding
Di = 4 : investor i relies mainly on bank/advisor for her investment decision
Di = 5 : investor i lets the bank/advisor decide everything

In the generalized ordered probit model, the parameters βj are allowed

to vary across alternatives by generalizing the threshold parameters and
making them dependent on covariates

κj = κ̃j + Xγj
Hence, the parameters βj in (4) are defined as βj = β − γj . In practice,
equality of coefficients β1 = ... = βJ is not imposed when statistical tests re-
ject the null of equality at the 5% level, implying that for these variables the
parallel-lines assumption is violated; otherwise equality is imposed. In the
present case, the parallel-lines assumption is violated for financial literacy
and trust in advisors.

4.3 Results: How much to rely on advisors

Table 9 reports the marginal effects from a generalized ordered probit regres-
sion on the probability of choosing one the five options about autonomous
investment/delegation.
The most interesting result is that the effect of financial literacy is non-
monotonic across delegation levels, thus confirming the descriptive evidence
found in Table 7.18 Higher financial literacy reduces the probability of choos-
ing to invest autonomously and it also reduces the probability of delegating
financial decisions mostly or completely to the advisor. On the contrary,
financial literacy increases the probability of choosing the intermediate op-
tion, i.e. consulting the advisor, while at the same time maintaining the
final decision over investments. This is consistent not only with the theoret-
ical predictions of Section 3, but also with the general finding that financial
literacy is associated with a tendency to consult professionals. To some ex-
tent, these findings also lend support to the results of Hackethal et al. (2009)
showing that advice is demanded by older and wealthier investors, rather
than by poorer and inexperienced ones. The fact that more knowledgeable
investors are more likely to consult an advisor but less likely to delegate
is also consistent with the finding of Hackethal et al. (2010) that investors
more interested in financial matters (and presumably more knowledgeable)
are less likely to follow advisor’s recommendations, conditional on receiving
advice.
Other interesting results emerge from Table 9. More educated investors
and those working in the financial sector are less likely to delegate and more
18
The same result about financial literacy, also quantitatively, is found estimating a
non-ordinal model, such as a multinomial logistic regression (not reported).

17
likely to invest by themselves. The fact that women are more likely to
delegate is not easy to interpret. It may be seen as an indirect effect of self-
confidence: as women are typically found to be less overconfident than men
(Barber and Odean, 2001), they might be less prone to invest by themselves.
Other explanations, however, may be equally valid (e.g., they are less used
than men to manage household’s finances).
The results about investors’ perception of their own financial knowl-
edge is worth commenting. Even though self-assessed financial knowledge
is often correlated with more objective measures (Guiso and Jappelli, 2008;
van Rooij et al., 2011), it is likely to drive the demand for financial advice
independently from the latter. Moreover, it is important to disentangle self-
assessed and test-based financial literacy also because initiatives aiming at
improving financial literacy may have the side-effect of raising self-confidence
without improving ability, leading to worse decisions (Willis, 2008). More-
over, Georgarakos and Inderst (2010) study from a theoretical point of view
the effect of investors’ perceived financial capability on their decision to rely
on a professional advisor or on their own judgment, arguing that when per-
ceived financial capability is higher the investor is more likely to rely on her
own knowledge instead of an advisor. Our results are that investors with
higher perceived financial knowledge are more likely to invest their assets
relying on their own judgment, instead of using an advisor. This confirms
the idea that self-assessed and objective financial literacy have a different
effect on financial behavior, and supports the theoretical predictions of Geor-
garakos and Inderst (2010).
Let us now turn to comment the variables that might be considered as
proxy for investors’ opportunity cost of time – such as their occupational
status, or their individual income. Hackethal et al. (2009) study the in-
vestment behaviour of the customers of a large German brokerage firm and
investigate the probability that investors have their accounts run by an inde-
pendent financial advisor. They show that advisors tend to be matched with
wealthier and older investors, who presumably delegate their investment de-
cisions (also) because of a high opportunity cost of time. In our estimation,
however, such variables do not affect the probability of delegating or in-
vesting autonomously. This may be in contrast with the previous findings
because the Unicredit sample is richer than the national average. This may
reduce the heterogeneity across the variables that are related to the oppor-
tunity cost. Finally, financial wealth appears to be related to a tendency to
delegate (even if not all wealth categories are significant), consistently with
Hackethal et al. (2009).
Finally let us comment the results about trust. As we argued before,
the market for financial advice is affected by conflicts of interests and mis-
selling practices may occur. Data from the European Social Survey 2004
show that, when asked how many times they had been cheated by a bank
or insurance company in the last 5 years, non-negligible shares of the pop-

18
ulation reported of having experienced cheating more than once. Figure 5
shows the distribution to this answer for some European countries. In all
the situations where investors may be afraid of being treated unfairly by
their advisor or broker, trust becomes important for the investment to take
place. Gambetta (1998) defines trust as “the subjective probability with
which an agent assesses that another agent or group of agents will perform
a particular action (p. 217)”. Recent research has shown that lack of trust
in the financial system and financial intermediaries reduces the probabil-
ity to hold risky assets and pension plans (Guiso et al., 2008; Pasini and
Georgarakos, 2009; Agnew et al., 2007). As expected, also in our case trust
towards one’s own advisor matters, as it increases the likelihood of delega-
tion and reduces that of autonomous investment. On the other hand, the
length of the relationship with the bank does not have a clear effect on the
delegation choice.

4.4 Robustness checks

As discussed in section 4.1, the financial literacy index is constructed as
in Guiso and Jappelli (2008). This equals the number of correct answers
to four questions about interest, inflation and risk diversification, plus four
questions based on understanding the riskiness of various financial products.
This index may be problematic not only because it involves some degree of
arbitrariness, but also because it may be overly dependent on some specific
question(s). As a robustness check, we estimate again model (4) with al-
ternative financial literacy indices.19 Table 10 reports estimation results,
showing that the effect of financial literacy is qualitatively the same across
indices 1 to 3, while results for the fourth one are insignificant on almost all
values of the dependent variable.

19
Alternative indices (all of them are re-scaled so as to range between 0 an 10):
- Financial literacy 1. It is the same the main index (Guiso and Jappelli, 2008),
rescaled: 10 × (Inf lation + Interest + Diversif 1 + Diversif 2 + Risk1 + Risk2 +
Risk3 + Risk4)/8
- Financial literacy 2. Since quizzes Risk1 − Risk4 are highly correlated among
themselves, this index gives them a lower weight: 10 × [Inf lation + Interest +
Diversif 1 + Diversif 2 + (Risk1 + Risk2 + Risk3 + Risk4)/4]/5
- Financial literacy 3. It is the same as the previous one with the difference that
the inflation question is eliminated, because it shows a very low correct response
rate (34%) – much lower than a similar question in the SHIW (60%) – which might
be related to a misinterpretation of the question rather than to financial illiteracy.
The index is: 10 × [Interest + Diversif 1 + Diversif 2 + (Risk1 + Risk2 + Risk3 +
Risk4)/4]/4
- Financial literacy 4: 10 × [Interest + Diversif 1 + Diversif 2]/3

19
 A second robustness check has to do with the sample used for estima-
tion. As was previously mentioned, the estimation sample includes only
observations where Unicredit is the main or only bank (excluding about 6%
of the total sample). We repeat the estimation of model (4) using alterna-
tive samples.20 Estimates from Table 11 show that results in all rows are
quantitatively very similar, even though in the third and fourth rows the ef-
fect of literacy on investing autonomously becomes insignificant (potentially
also because of a reduction in sample size).

4.5 Potential financial literacy endogeneity

The fact that financial literacy is associated with the preference for formal
sources of advice and with the tendency to consult rather than delegate
to professional advisors does not necessarily provide indications on the di-
rection of causality. Financial literacy may be positively correlated with a
preference for advisors because individuals learn from formal sources, rather
than because financially literate individuals choose formal sources of advice.
Similarly, investors who consult professional advisors are more likely to learn
from them than those who delegate or invest by themselves. Moreover, an-
other source of endogeneity may be constituted by a an unobserved factor
(such as time preferences) driving both the willingness to acquire financial
literacy and the demand for financial advice.
To address this issue we follow two strategies. First, we concentrate
on potential learning from the bank and consider various sub-samples of
respondents who should be more likely to learn from the bank (i.e. those
who use the bank often or prefer the bank to friends, and those who report
Di = 3). Then we check whether financial literacy increases with the length
of bank relationship, under the assumption that if there is learning from the
bank, it should be related to the length of relationship. Table 12 shows that
financial literacy is not related to being a long-time customer of Unicredit
in any of the sub-samples considered.
Second, as it is arguable that financial literacy may still be endogenous
in spite of this evidence (for instance because of a spurious relation), model
(4) is estimated again controlling for endogeneity via the control function
approach (Rivers and Vuong, 1988).21 The instruments for financial liter-
20
Alternative sub-samples:
- Unicredit is the main or only bank (i.e., the baseline), with N = 1,116
- Unicredit is the only bank, with N = 802
- Unicredit is the main or only bank and the respondents uses brokers for advice
never, seldom or sometimes, with N = 847
- Unicredit is the main or only bank and the respondent never or seldom uses brokers
for advice, with N = 705

21
When estimating a probit model with a continuous endogenous variable, the two-step

20
acy are the average financial literacy at regional level (taken from the Bank
of Italy’s Survey on Household Income and Wealth, SHIW) and experience
with financial products (from UCS). Financial literacy at regional level is
likely to increase individual knowledge through social interaction. The mea-
sure of previous experience is based on a question asking at what age the
individual first traded a given financial product (either government bonds,
stocks or mutual funds). This is strongly related to financial literacy, while
it is not related to the extent of delegation (controlling for age and length
of bank relationship, see Table 9). Estimates from a first stage regression
are reported in Table 13, together with statistics about instruments validity.
Both experience and regional financial literacy positively and significantly
affect the financial knowledge of Unicredit customers, and taken together
produce an F statistic of over 18, indicating that the instruments have suffi-
cient explanatory power. Moreover, the Hansen’s J test does not reject the
null of instruments validity (p-value 0.169).
Results from Table 14 show that the positive relation between financial
literacy and the propensity to consult an advisor is robust to controlling for
endogeneity and is even stronger than in Table 9. The effect of financial
literacy on investing autonomously and on delegating turns insignificant,
even though it carries the same (negative) sign as before.

5 Concluding remarks
In this paper we analyze the effect of investors’ financial literacy on their
decision about whether and how much to rely on financial advisors. We
pursue both a theoretical and an empirical analysis, that produce results
consistent with each other.
We model the strategic interaction between an informed intermediary
who at the same time sells a risky financial product and provides information
to the investor, and the latter who is less informed than the seller about
the risky asset return. Based on her prior knowledge, the investor decides
whether to delegate or to consult the intermediary for information without
delegating (or none of the two). In turn, the intermediary decides whether
to reveal or not the information he possesses, depending on the costs and
incentives he faces.
The theoretical analysis provides a number of new results. First, advi-
sors are not informative towards the poorly informed investors, while they
provide valuable information only to relatively more informed ones. This
implies that advisors are not useful to the investors who need them the
approach due to Rivers and Vuong (1988) consists in saving the residuals from the first
stage regression and then plugging them into the structural probit equation. This proce-
dure can be easily extended to ordered probit response models (Wooldridge, 2007), and can
analogously be extended to a generalized ordered probit model, since the generalization
does not affect the error term of the discrete choice equation.

21
most since they fail to be a substitute to self learning. Second, if investors
know advisor’s selling incentives, advisors are visited only by sufficiently
informed individuals who know they will receive meaningful information.
On the contrary, poorly informed investors either invest without asking for
advice or delegate their portfolio choice fully. This in turn implies that
only knowledgeable investors, by consulting an advisor, implement the “first
best” investment decision, i.e. the one with complete information (because
they learn the true state of r̃ from the advisor), while less knowledgeable
investors are likely to suffer from ex-post losses.
The empirical analysis confirms the theoretical predictions of the model
about the effect of financial knowledge on the demand for financial advice.
Exploiting the 2007 Unicredit Customer’s Survey, a representative survey
of the customers of one of the largest Italian commercial banks, we find
that, controlling for a number of factors including trust towards one’s own
advisor, self-confidence in own financial ability, wealth and opportunity cost
of time, financial literacy increases the probability of consulting an inter-
mediary/financial advisor, as opposed to investing without consulting any
professional or delegating. These results are robust to a number of checks
and to the potential endogeneity of financial literacy.
The analysis carried out in this study is relevant for consumers, scholars
and policy-makers. Consumers are affected by the quality of the advice they
demand. Moreover, the concerns expressed by scholars and policy-makers
about the lack of financial literacy would be less worrying if individual gaps
were compensated by external advice coming from reliable and qualified
sources.
However, our findings suggest that the presence of qualified sources of
advice in presence of agency conflicts may not be enough to counteract the
effects of the low level of financial literacy. This implies that further policy
measures may be needed to ensure sound financial decision-making. For
instance, our results provide a rationale for financial education initiatives,
because they suggest that learning about finance is necessary in order to
make the right financial decisions even in the presence of qualified financial
advisors. Moreover, we show that there is scope for interventions which
reduce the conflicts of interests between intermediaries and clients and which
subsidize the development of independent advisors.

22
References
Agnew, J. R., L. Szykman, S. P. Utkus, and J. A. Young (2007). Literacy,
trust and 401(k) savings behavior. Working paper CRR WP 2007-10,
Center for Retirement Research at Boston College.

Barber, B. M. and T. Odean (2001). Boys will be boys: Gender, overcon-

fidence, and common stock investment. The Quarterly Journal of Eco-
nomics 116 (1), 262–292.

Beltratti, A. (2007). Gli impieghi del risparmio. In A. Beltratti (Ed.), Fi-

nanza Globale, Risparmiatore Locale – XXV Rapporto BNL/Centro Ein-
audi sul risparmio e sui risparmiatori in Italia. BNL Edizioni, Guerini e
Associati.

Bernheim, D. D. (1998). Financial illiteracy, education, and retirement sav-

ing. In O. S. Mitchell and S. J. Schieber (Eds.), Living with Defined Con-
tribution Pensions, pp. 38–68. The Pension Research Council, Wharton
School Pension Research Council, University of Pennsylvania.

Boes, S. and R. Winkelmann (2006). Ordered response models. Allgemeines

Statistisches Archiv 90 (1), 165–179.

Bolton, P., X. Freixas, and J. Shapiro (2007). Conflicts of interest, informa-

tion provision, and competition in the financial services industry. Journal
of Financial Economics 85 (2), 297 – 330.

Carlin, B. I. (2009). Strategic price complexity in retail financial markets.

Journal of Financial Economics 91 (3), 278 – 287.

Cho, I.-K. and D. M. Kreps (1987). Signaling games and stable equilibria.
The Quarterly Journal of Economics 102 (2), 179–222.

Crawford, V. P. and J. Sobel (1982). Strategic information transmission.

Econometrica 50 (6), 1431–1451.

Duflo, E. and E. Saez (2002). Participation and investment decisions in a

retirement plan: The influence of colleagues’ choices. Journal of Public
Economics 85 (1), 121 – 148.

European Commission (2009). Commission Staff Working Document on the

Follow up in Retail Financial Services to the Consumer Markets Score-
board. SEC(2009) 1251 final. Brussels: Commission of the European Com-
munities.

Forbes, J. and S. M. Kara (2010). Confidence mediates how investment

knowledge influences investing self-efficacy. Journal of Economic Psy-
chology 31 (3), 435 – 443.

23
Gambetta, D. (1998). Can we trust trust? In D. Gambetta (Ed.), Trust:
Making and Breaking Cooperative Relations, pp. 213–237. Oxford: Uni-
versity of Oxford.

Georgarakos, D. and R. Inderst (2010). Financial advice and stock market

participation. mimeo.

Greene, W. H. and D. A. Hensher (2010). Modeling Ordered Choices: A

Primer. Cambridge: Cambridge University Press.

Guiso, L. and T. Jappelli (2008). Financial literacy and portfolio diversifi-

cation. EUI Working Paper ECO 2008/31.

Guiso, L., P. Sapienza, and L. Zingales (2008). Trusting the stock market.
Journal of Finance 53 (6), 2557–2600.

Hackethal, A., M. Haliassos, and T. Jappelli (2009). Financial advisors: A

case of babysitters? CEPR Discussion Paper (No. 7235).

Hackethal, A., R. Inderst, and S. Meyer (2010). Trading on advice. mimeo.

Hong, H., J. D. Kubik, and J. C. Stein (2004). Social interaction and stock-
market participation. The Journal of Finance 59 (1), 137–163.

Inderst, R. and M. Ottaviani (2009). Misselling through agents. The Amer-

ican Economic Review 99 (3), 883 – 908.

Kimball, M. S. and T. Shumway (2007). Investor sophistication and the

home bias, diversifcation, and employer stock puzzles. mimeo, University
of Michigan.

Krausz, M. and J. Paroush (2002). Financial advising in the presence of

conflict of interests. Journal of Economics and Business 54, 55 – 71.

Kruger, J. and D. Dunning (1999). Unskilled and unaware of it: How

difficulties in recognizing one’s own incompetence lead to inflated self-
assessments. Journal of Personality and Social Psychology 77 (6), 1121–
1134.

Lusardi, A. and O. Mitchell (2006). Financial literacy and planning: Impli-

cations for retirement wellbeing. PRC Working Paper No. 1/2006.

Lusardi, A. and O. S. Mitchell (2007). Baby boomer retirement security:

The roles of planning, financial literacy, and housing wealth. Journal of
Monetary Economics 54 (1), 205–224.

Lusardi, A. and P. Tufano (2009). Debt literacy, financial experiences, and

overindebtedness. NBER Working Paper No. W14808, National Bureau
of Economic Research.

24
Mullainathan, S., M. Nöth, and A. Schoar (2010). The market for financial
advice: An audit study. Paper presented at the II SAVE Conference ‘to
SAVE or not to SAVE: Old-age provision in times of crisis’, 16-17 june
2010, Deidesheim, Germany.

Ottaviani, M. (2000). The economics of advice. mimeo.

Pasini, G. and D. Georgarakos (2009). Trust, sociability and stock market

participation. Netspar Discussion Paper No. 04/2009-015, Netspar.

Rivers, D. and Q. H. Vuong (1988). Limited information estimators and

exogeneity tests for simultaneous probit models. Journal of Economet-
rics 39 (3), 347–366.

Shapira, Z. and I. Venezia (2001). Patterns of behavior of professionally man-

aged and independent investors. Journal of Banking and Finance 25 (8),
1573–1587.

Terza, J. V. (1985). Ordered probit: A generalization. Communications in

Statistics - A. Theory and Methods 14 (1), 1–11.

van Rooij, M., A. Lusardi, and R. Alessie (2011). Financial literacy and stock
market participation. Journal of Financial Economics (forthcoming).

Vissing-Jorgensen, A. (2004). Perspectives on behavioral finance: Does “ir-

rationality” disappear with wealth? Evidence from expectations and ac-
tions. In NBER Macroeconomics Annual 2003, Volume 18, pp. 139–208.
National Bureau of Economic Research.

Willis, L. E. (2008). Against financial-literacy education. Iowa Law Re-

view 94, 197–285.

Wooldridge, J. M. (2007). Control Functions and Related Methods – What’s

New in Econometrics? Lecture 6. NBER Summer Institute 2007.

25
A Proofs
Proof of Lemma 1: Let us start considering the case π ∈ [1/2, π0 ) :

(i) Existence. Remember that, if the investor were to base her portfolio
decision on her information set without any additional information
from the advisor, when π ∈ [1/2, π0 ) she would choose to invest v ∗ > 0
regardless of the realization of the signal si = {rH , rL } she received.
The candidate equilibrium is a pooling equilibrium where σ ∗ (ri ) = rH
for both ri = {rH , rL } and where the equilibrium payoffs of the advisor
∗
are US(r = F and US(r ∗ = F − (rH − rL )2 .
H) L)

Consider a deviation σ(rL ) = rL . Observing this out of equilib-

rium message, the investor assigns a probability q = P r(rH |σ =
rL ) to the event that such a message was sent by S(rH ). Notice
that for any belief q ∈]0, 1[ the equilibrium payoff S(rH ) obtains is
larger than the one he would obtain by deviating, that is US(r dev =
H)
2 2 2 ∗

max F − (rH − rL ) , −(rH − rL ) = F − (rH − rL ) < F = US(rH ) .
On the contrary, the deviation may be profitable for S(rL ) if q is such
that the investor buys v ∗ > 0, by Assumption 1 (i.e. F − (rH − rL )2 >
0). Hence, using the intuitive criterion (Cho and Kreps, 1987), we can
restrict the out of equilibrium beliefs to q = 0. Under these beliefs, it
is not profitable for S(rL ) to deviate from the pooling equilibrium.
Finally, consider any deviation in mixed strategies, where for example
S(rL ) sends message σ(rL ) = rL with probability τ > 0. An investor
observing σ = rL even with a small probability assigns a higher belief
to the event that such message was sent by S(rL ) (indeed, as described
above, it would be more profitable to deviate for S(rL ) than for S(rH )).
But then S(rL ) would obtain a lower payoff sending σ(rL ) = rL than
at equilibrium.
Uniqueness. Let us show that in the region π ∈ [1/2, π0 ) the pooling
equilibrium (σ(ri )∗ = rH ) is unique.

– Rule out the perfectly revealing strategy profile (σ(rH ) = rH ; σ(rL ) =

∗
rL ). Its payoffs are US(r = F and US(r ∗ = 0. In this case
H) L)
S(rL ) is better off sending σ(rL ) = rH and obtaining US(r dev =
L)
2 2
F − (rH − rL ) since F − (rH − rL ) > 0 by Assumption 1.
– Rule out the perfectly revealing strategy profile (σ(rH ) = rL ; σ(rL ) =
rH ). Its payoffs are US(r∗ = F − (rH − rL )2 and US(r ∗ =
H) L)
2
0 − (rH − rL ) . However, S(rH ) is better off sending σ(rH ) = rH
dev
(resulting in payoff US(r = F > US(r∗ ), while S(rL ) is better
H) H)
dev
off with σ(rL ) = rL (resulting in payoff US(r ∗
= 0 > US(r ).
H) L)

26
 – Rule out partially revealing strategies where σ(rH ) = (rH , rL )
with probability (m, 1 − m) and σ(rL ) = (rH , rL ) with probabil-
ity (n, 1 − n), where 0 < m < 1 and 0 < n < 1. A necessary
condition for the existence of such a mixed strategy equilibria is
that, for each type of seller, the payoff obtained by playing either
signal should be the same in equilibrium. This is clearly not ver-
ified, as long as F 6= (rH − rL )2 . For instance the payoff for the
high-type seller S(rH ) playing σ = rH can be either F or 0, while
the payoff for the high-type seller playing σ = rL can be either
F − (rH − rL )2 or −(rH − rL )2 .

Now consider the case π ∈ [π0 , 1).

(ii) Existence. Notice that if the buyer does not receive any additional
information from the seller (i.e. as in a pooling equilibrium) when
π ∈ [π0 , 1) the investor chooses v ∗ > 0 when si = rH , and v ∗ = 0
for si = rL . Since the advisor does not observe the realization of
the signal si = (rH , rL ), a high-type advisor will expect v ∗ > 0 with
probability π and v ∗ = 0 with probability (1 − π). On the contrary,
a low-type seller expects v ∗ > 0 with probability (1 − π) and v ∗ = 0
with probability π.
The candidate equilibrium is a fully revealing equilibrium where σ(ri )∗ =
ri for ri = {rH , rL }, and where the equilibrium payoffs of the seller are
∗
US(r = F and US(r∗ = 0.
H) L)

Consider a unilateral deviation σ(rH ) = rL by S(rH ). Given investor’s

prior beliefs (π, 1−π), this deviation is not profitable because the payoff
would be US(rdev = πF − (rH − rL )2 < US(r ∗ .
H) H)

Consider now a unilateral deviation σ(rL ) = rH by S(rL ). This would

∗
give the seller the payoff US(rL ) = (1 − π)F − (rH − rL )2 < 0 = US(r L)
by Assumption 1 and by considering that π > π0 .
Finally, consider a deviation in mixed strategies, where seller S(rH )
sends message σ(rH ) = rL with probability τ > 0. This, again, is not
a profitable deviation because it would result in a payoff πF − (rH −
∗
rL )2 < US(r when σ(rH ) = rL realizes.
H)

Uniqueness. Let us show that in the region π ∈ [π0 , 1) the fully re-
vealing equilibrium (σ(ri )∗ = ri ) is unique by showing that all other
equilibria do not exist:

– Pooling strategy profile (σ(rH ) = rH ; σ(rL ) = rH ). Its payoffs are

∗
US(r ∗
= πF and US(r = (1 − π)F − (rH − rL )2 . These payoffs
H) L)
cannot be equilibrium payoffs since then it would be profitable

27
 dev = 0 since
for S(rL ) to send message σ(rL ) = rL obtaining US(r L)
(1 − π)F − (rH − rL )2 < 0 by Assumption 1.
– Pooling strategy profile (σ(rH ) = rL ; σ(rL ) = rL ). If this was an
∗
equilibrium, the payoffs would be US(r = πF − (rH − rL )2 and
H)
∗
US(rL ) = (1 − π)F . Again, these payoffs cannot be at equilib-
rium since then it would be profitable for S(rH ) to send message
dev
σ(rH ) = rH obtaining US(r = F > US(r∗ = πF − (rH − rL )2 .
H) H)

– Partially revealing strategy profile where σ(rH ) = (rH , rL ) with

probability (m, 1 − m) and σ(rL ) = (rH , rL ) with probability
(n, 1 − n), where 0 < m < 1 and 0 < n < 1. Analogous to the
proof for point (i). 

Proof of Lemma 2: Let us compare the utility the investor would

obtain by consulting the advisor and by investing autonomously. For con-
venience of exposition, let us consider three separate cases:

- π ∈ [1/2, π0 ) (irrespectively of si = rL and si = rH ): by Lemma

1, the investor anticipates an uninformative signal from the advisor;
hence, for any small cost of advice  > 0, the investor prefers not
to demand advice. Given that π ∈ [1/2, π0 ) she would choose v ∗ >
0 for any realization of the signal si . Therefore her utility UBself =
1 (E[r̃|si =rL ,π ])2
2 γV ar[r̃|si =rL ,π ] > UBadv , for any si = rL , rH .

- si = rL and π ∈ [π0 , 1]: the investor anticipates an informative sig-

nal from the advisor by Lemma 1. The utility she would obtain by
consulting an advisor is UBadv = (1 − π)U . This is because when
si = rL the investor’s expected probability that the true state is rH
is equal to 1 − π = P r(rH |si = rL ). Moreover, if the advisor’s sig-
nal is σ ∗ (rH ) = rH and π ∈ [π0 , 1], by Lemma 1 the variance of her
portfolio goes to zero. We put an (arbitrarily large) bound to U to
avoid the investor obtains an infinite utility.22 The utility she would
obtain investing by herself is UBself = 0, because, when π ∈ [π0 , 1],
E[r̃ |si = rL ] = πrL + (1 − π)rH < 0 and she would rather not invest
in the risky asset. Since UBadv = (1 − π)U > 0 visiting the advisor is
strictly preferred by the investor.

- si = rH and π ∈ [π0 , 1): by Lemma 1, the investor anticipates an

informative signal from the advisor so that the utility she would ob-
tain by consulting an advisor is UBadv = πU . This is because when
22
With borrowing constraints, the boundary U is proportional to the wealth the buyer
is able to invest (or is willing to invest, given her overall portfolio maximization) in the
risky asset.

28
 si = rH the investor’s expected probability that the true state is rH
is π = P r(si = rH |rH ). Since the advisor is perfectly informed, the
variance of the portfolio goes to zero. The utility she would obtain by
(E[r̃|si =rH ,π ])2
herself is UBself = 12 γV ar[r̃|si =rH ,π ] . Given that U is arbitrarily large,
we can safely assume that πU > UBself (π, si = rH ) ∀ π ∈ [π0 , 1],
and so demanding advice is preferred by the investor than investing
by herself. 

Proof of Lemma 3: Recall that we consider the case in which the

investor decides to delegate her portfolio decision to the advisor or not after
receiving the signal si .
Let us first derive the expected utility functions in case of astomous
investment. For the case si = rH , the expected value and variance of r̃ are:

E[r̃|π, si = rH ] = rH P r[rH |si = rH ] + rL P r[rL |si = rH ]

P r[rH ]P r[si = rH |rH ] P r[rL ]P r[si = rH |rL ]
= rH + rL
P r[si = rH ] P r[si = rH ]
1/2π 1/2(1 − π)
= rH + rL
1/2π + 1/2(1 − π) 1/2π + 1/2(1 − π)
= πrH + (1 − π)rL

and
X
V ar[r̃|π, si = rH ] = [ri − E(r̃|si = rH )]2 P r(ri |si = rH )
i
= [rH − E(r̃|si = rH )]2 P r(rH |si = rH )+
+ [rL − E(r̃|si = rH )]2 P r(rL |si = rH )
= π(1 − π)(rH − rL )2

The case si = rL is analogous. We therefore have

1 1
EUBself = UB (π, si = rH ) + UB (π, si = rL )
2 2
[πrH + (1 − π)rL ]2 [πrL + (1 − π)rH ]2
+ −
4γπ(1 − π)(rH − rL )2 4γπ(1 − π)(rH − rL )2

which – following Lemma 2 – can be further stated as

1 1
π ∈ [1/2, π0 ) : EUBself = UB (π, si = rH ) + UB (π, si = rL )
2 2
1
π ∈ [π0 , 1] : EUBself = UB (π, si = rH )
2

29
 We know by Lemma 1 and 2 that for π ∈ [1/2, π0 ), EUBself > EUBadv
while for π ∈ [π0 , 1], EUBadv = 21 U > EUBself , irrespective of the signal real-
ization. Let us proceed then analizing all possible cases:

(a) si = rH and π ∈ [1/2, π0 ) : if she delegates her portfolio decision, she

anticipates that her utility is equal to U if the risky asset return is rH , and to
U if the return is rL . Since Pr(rH |si = rH ) = π and Pr(rL |si = rH ) = 1−π
the utility the buyer obtains from delegation is equal to:

EUBdel = πU + (1 − π)U = U + π(U − U )

which is increasing in π while EUBself > EUBadv is increasing and convex with
respect to π for π ∈ [1/2, 1].
Given that, by Lemma 2 UBself (π, si = rH ) is increasing and convex in π
it is always possible to find two values U > 0 and U < 0 such that it exists
a threshold πb(U , U ) ∈ [1/2, π0 ) for which
EUBself ≥ EUBdel for π ∈ [1/2, π
b)
EUBself < EUBdel for π ∈ [b
π , π0 )

(b) si = rH and π ∈ [π0 , 1] : by Lemmas 1-2, we have that EUBadv =

πU > EUBself given that Pr(rH |si = rH ) = π; the utility under delegation
is equal to
EUBdel = πU + (1 − π)U < EUBadv
hence the buyer never delegates her investment decision.

(c) si = rL and π ∈ [1/2, π0 ) : by Lemmas 1-2, anticipating a pooling

equilibrium, EUBself > EUBadv and EUBself is decreasing and convex with
respect to π for π ∈ [1/2, 1]. As in the case (a), if she delegates her port-
folio decision, the investors’s utility is equal to U if the risky asset return
is rH , and to U if the return is rL . Since Pr(rH |si = rL ) = 1 − π and
Pr(rL |si = rL ) = π the utility the buyer obtains from delegation is equal
to:

EUBdel = (1 − π)U + πU = U − π(U − U )

which is decreasing in π. Thus, for two values U > 0 and U < 0, there exists
b(U , U ) ∈ [1/2, π0 ) such that
a threshold π
b

EUBself < EUBdel for π ∈ [1/2, πb)

b
EUBself ≥ EUBdel for π ∈ [π
b , π0 )
b

30
 (d) si = rL and π ∈ [π0 , 1] : by Lemma 1-2 we obtain EUBadv = (1−π)U >
0 = EUBself given that Pr(rH |si = rL ) = 1 − π; the utility the buyer obtains
delegating is
EUBdel = (1 − π)U + πU < EUBadv
hence as in case (b) the buyer never delegates her investment decision.
Note that the proof is analogous for the case in which the delegation
decision is taken before observing the realization of signal si . 

B Figures

Delegate

Self

Not delegate

Advice

t=0 t=1 t=2 t=3

B receives B decides whether B decides whether to ask for advice or not r is
signal si with to delegate or not If she asks for advice, B and S interact in a realized
given π communication game, where S decides
whether to reveal his information or not

Figure 1: Timing

31
 Main source of financial information
100
80
60
%
40
20
0

2001 2002 2003 2004 2005 2006 2007

Bank Broker Friends/family
Newspapers Internet TV
Other None DK/refuse
Source: BNL/Centro Einaudi 2007

Figure 2: Main source of financial information

Bank Broker Friends/Relatives

60
40
20
Percent
0

TV/Radio Press Internet

60
40
20
0

Never Very often Never Very often Never Very often

Frequency of use of various sources of info/advice (Source: UCS 2007)

Figure 3: Frequency of use of sources of information/advice

32
 30
20
Percent
10
0

0 2 4 6 8
Financial literacy (Number correct)

Figure 4: Financial literacy distribution (baseline definition)

Germany Spain France

80
60
40
20
Percent
0

UK Italy Netherlands
80
60
40
20
0

Never 1 2 3-4 5+ Never 1 2 3-4 5+ Never 1 2 3-4 5+

Times cheating by bank/insurance company, last 5 yrs
Source: ESS 2004

Figure 5: Frequency of cheating by bank/insurance company

33
C Tables

Table 1: Variable Description and Data Sources

Variable Description Source

Financial Liter- The financial literacy measure is constructed as in Guiso and Jappelli UCS
acy (2008). One point is given if the respondent can answer correctly to
each of the following questions:

- Inflation: Imagine an account yields 2% yearly (net of costs

and taxes). With inflation at 2% per year, how much do you
think you will be able to buy after two years (without moving
funds in the account)? More than what I could buy today |
Less | The same | Do not know;

- Interest: Imagine you know with certainty that in six months

interest rates will rise. Do you think you should buy fixed rate
bonds today? Yes | No | Do not know

- Diversif1 : What do you think having correctly diversified in-

vestments means? Having in one’s own portfolio both bonds
and stocks | Do not invest for too long in the same finan-
cial product | Invest in as many assets as possible | Invest
in several assets at the same time, in order to limit exposure
to risks linked to single assets | Do not invest in very risky
products | Do not know

- Diversif2 : Which of these portfolios is better diversified?

70% T-bills, 15% European equity fund, 15% in 2-3 Italian
stocks | 70% T-bills, 30% European equity fund | 70% T-
bills, 30% in 2-3 Italian stocks | 70% T-bills, 30% in stocks
of companies I know well | Do not know

Four other indicators are based on the question “How risky do you
think these products are?” The answers can be from 1 (Not risky at
all) to 5 (Very risky) and ‘Do not know’ is always an option. One
point is given if the respondent can correctly state that

- Risk1 : Private bonds are at least as risky as deposits

- Risk2 : Stocks at least are as risky as government bonds

- Risk3 : Stocks mutual funds are at least as risky as bonds

mutual funds

- Risk4 : Housing is at least as risky as deposits

Self-confidence It is based on the question: “For each of these ten assets I would like UCS
(Self-assessed you to tell me how much you think you know it”, where the answer
financial knowl- can be in the range 1 (I do not know it at all) to 5 (I know it very
edge) well). The assets are: government bonds, repurchase agreements,
private bonds, mutual funds, derivatives, unit-linked or index-linked
life insurance, ETFs, managed portfolios, structured products. The
self-confidence index used in the analysis is the average of these ten
measures, and ranges from 1 to 5.
Continues

34
 Table 1: (continued)

Variable Description Source

Experience Three questions are used in measuring experience in assets trading. UCS
If the respondent has ever invested in either bonds, stocks or mutual
funds, then the UCS asks at which age the respondent first invested
in each of bonds, stocks and mutual funds. Experience in each asset
is computed as the difference between current age and age of first
investment. Overall experience is computed as the maximum of these
three numbers. If the respondent has never invested in any of the
three assets, experience is set to zero.
Finance sector A dummy variable taking value of one if the respondent works in UCS
the sector related to “monetary and financial intermediation, and
insurances”
Financial wealth Given the categorical variable f patrim based on administrative data UCS
categories and indicating in which class the financial holdings (at the bank) of
each respondent fall, and given the categorical variable self w indicat-
ing the self reported category in which the (total) financial holdings
of each respondent fall, I build a categorical variable f inw that is

f patrim if self w ≤ f patrim
f inw =
self w if self w > f patrim

Since about 54% of the observations in self w are missing, it is likely

that f inw is still under-reported with respect to the true financial
wealth.
Zero saving rate It is captured by a question asking “On average, in the year 2006 UCS
which percentage of your income did you save? More then 50% of
your annual income | 30-50% | 20-30% | 10-20% | 5-10% | 1-5% |
0%, I did not save anything”. The variable used in the analysis is a
dummy variable taking the value of one if the answer is “0%, I did
not save anything”
Risk preferences It is based on the question “In managing your financial investments UCS
which of these attitudes do you usually have? When I invest I usually
look for: Very high returns, even with a high risk of losing part of
your principal | High returns with a fair degree of principal safety |
Fair returns with high safety of your principal | Low returns without
risk of losing your principal”
Trust towards It is based on the question “Overall, how much trust do you have UCS
own financial in your bank advisor or financial advisor concerning your financial
advisors investments?” with the answers ranging from 1 (No trust at all) to
5 (I trust a lot).

35
 Table 2: Summary statistics

Mean Median Std. Dev. Min Max

Female 0.30 0 0.46 0 1

Age 54.81 57 12.27 25 89
Years schooling 12.47 13 4.04 0 20
Employee 0.32 0 0.47 0 1
Self-employed 0.28 0 0.45 0 1
Unemployed 0.01 0 0.07 0 1
Retired 0.33 0 0.47 0 1
Other out of the labor force 0.07 0 0.25 0 1
Total individual income (th.) 50.72 31 67.85 0.2 822
Fin Wealth 10 − 50, 000 euro 0.15 0 0.36 0 1
Fin Wealth 50 − 100, 000 euro 0.22 0 0.41 0 1
Fin Wealth 100 − 150, 000 euro 0.19 0 0.39 0 1
Fin Wealth 150 − 250, 000 euro 0.18 0 0.38 0 1
Fin Wealth 250 − 500, 000 euro 0.19 0 0.39 0 1
Fin Wealth 500, 000+ euro 0.07 0 0.25 0 1
Experience 13.37 12 12.82 0 53
Years at Unicredit: < 1 0.01 0 0.11 0 1
Years at Unicredit: 1 − 5 0.10 0 0.31 0 1
Years at Unicredit: 6 − 10 0.19 0 0.39 0 1
Years at Unicredit: 11 − 20 0.24 0 0.43 0 1
Years at Unicredit: 20+ 0.45 0 0.50 0 1
Trust towards advisor 3.78 4 0.91 1 5
Financial literacy 4.68 5 1.48 0 8
Self-assessed fin knowledge 2.90 2.9 0.85 1 5
Very risk tolerant 0.02 0 0.13 0 1
Risk tolerant 0.28 0 0.45 0 1
Risk averse 0.52 1 0.50 0 1
Very risk averse 0.19 0 0.39 0 1
Saving: > 50% 0.03 0 0.17 0 1
Saving: 30 − 50% 0.09 0 0.28 0 1
Saving: 20 − 30% 0.16 0 0.37 0 1
Saving: 10 − 20% 0.20 0 0.40 0 1
Saving: 5 − 10% 0.17 0 0.38 0 1
Saving: 1 − 5% 0.13 0 0.34 0 1
Saving: 0% 0.22 0 0.42 0 1
Data: Unicredit 2007. N = 1,686

36
 Table 3: Comparison between UCS and SHIW datasets

UCS 2007 SHIW 2006

Household Account Household
Account head holder head and
holder (answering at bank or account
FL tests) post office holder

Male 69.9 62.8 49.1 65.0

Age: ≤ 30 2.5 3.4 29.7 3.3

31 − 40 12.9 13.8 13.0 14.3
41 − 50 21.6 19.8 15.4 20.4
51 − 65 38.3 28.4 22.0 29.4
66+ 24.6 34.6 20.0 32.6

No education 0.4 5.7 11.0 4.0

Primary 8.7 25.8 20.0 23.7
Secondary 20.9 27.9 28.9 28.2
High school 43.7 31.8 31.1 34.3
University degree or more 26.4 8.8 9.0 9.8

North-west 22.8 25.9 25.5 28.2

North-east 28.5 22.0 22.8 23.5
Center 24.3 19.7 21.0 20.5
South 16.9 20.9 19.9 17.7
Isles 7.5 11.6 10.9 10.1

Household income (avg.) 71,324.6 31,659.5 37,850.9 33,653.1

< 20, 000 7.4 32.5 19.9 27.2
20 − 50, 000 44.5 53.3 60.0 57.1
50 − 100, 000 31.7 12.5 17.9 14.0
100, 000+ 16.4 1.6 2.2 1.8

Financial Literacy
Inflation 34.2
Interest 52.0
Diversification 1 39.9
Diversification 2 13.0
Risk 1 (Private bond vs. deposit) 83.8
Risk 2 (Stocks vs. gov bonds) 89.1
Risk 3 (Equity fund vs. bond fund) 81.0
Risk 4 (Housing vs. deposits) 75.0
Account statement 50.8 54.7
Inflation 60.5 64.1
Compare returns 27.2 29.5
Interest compounding 39.6 42.5
Equity fund 51.3 54.3
Mortgage 53.6 56.9
N correct (%) 58.5 47.2 50.3
N don’t know (%) 11.9 34.2 30.4
N incorrect (%) 29.6 18.6 19.2
Zero correct 1.0 18.9 15.2

N 1,686 3,992 17,688 3,574

Data: Unicredit 2007 and SHIW 2006
37
Table 4: How much do you use each of these sources to have information
about your financial investments?

Bank Broker Friends, Econ TV/radio Econ pages

relatives, programs in non-econ
colleagues newspapers

Never 3.5 24.7 41.2 29.2 26.1

Seldom 8.0 9.0 23.9 24.7 20.6
Sometimes 25.8 23.0 22.5 29.9 29.8
Often 40.2 32.0 10.5 12.7 19.3
Very often 22.5 11.3 1.9 3.5 4.3

Econ inserts Econ Non-econ Econ Econ

in non-econ newspapers magazines magazines websites
newspapers

Never 36.8 30.8 45.8 50.4 50.1

Seldom 21.7 19.6 21.8 20.3 13.4
Sometimes 24.6 25.9 21.8 17.7 16.6
Often 14.0 15.6 8.5 9.6 12.5
Very often 3.0 8.1 2.1 2.1 7.4

Total 100 100 100 100 100

Unicredit 2007. N = 679. Conditional on spending at least some time to gather infor-
mation about how to manage savings and investments.

38
 Table 5: Which of these statements best describes your behaviour in deciding
how to invest your savings?

Unconditional Conditional
on having
risky assets

I decide completely autonomously, the bank executes my decisions 8.60 12.03

I tell bank/advisor how I intend to invest and ask for their opinion 21.59 30.21
I consider bank/advisor proposals before deciding 27.16 38.01
I mostly rely on bank/advisor for my investment decisions 11.51 16.10
I let bank/advisor decide everything 2.61 3.65
Non-participation 28.53

Total 100 100

N 1,686 1,205
Unicredit 2007.

39
 Table 6: Answers to financial literacy tests (N = 1,686)

Freq. Percent

Inflation:
More than today 39 2.3
Less than today 881 52.3
Same as today (correct) 577 34.2
Do not know 189 11.2

Interest:
Yes 388 23.0
No (correct) 876 52.0
Do not know 422 25.0

Diversification 1 :
To have both bonds and stocks 282 16.7
Do not hold same asset for too long 111 6.6
Invest in as many assets as possible 144 8.5
Invest in more assets to limit risk exposure of single ones (correct) 672 39.9
Do not invest in very risky assets 292 17.3
Do not know 185 11.0

Diversification 2 :
70% T-bills, 15% European equity fund, 15% in 2-3 Italian stocks 688 40.8
70% T-bills, 30% European equity fund (correct) 219 13.0
70% T-bills, 30% in 2-3 Italian stocks 117 6.9
70% T-bills, 30% in stocks of companies I know well 149 8.8
Do not know 328 19.5

Correct on risk 1 1,413 83.8

Correct on risk 2 1,502 89.1
Correct on risk 3 1,365 81.0
Correct on risk 4 1,264 75.0
Unicredit 2007.

Table 7: Financial literacy by degree of reliance on advice

Freq Mean Std. Dev.

I decide completely autonomously, the bank executes my decisions 145 4.97 1.33
I tell bank/advisor how I intend to invest and ask for their opinion 364 4.98 1.25
I consider bank/advisor proposals before deciding 458 5.09 1.32
I mostly rely on bank/advisor for my investment decisions 194 4.63 1.48
I let bank/advisor decide everything 44 4.30 1.19

Total 1205 4.94 1.34

Unicredit 2007.

40
 Table 8: Investing autonomously or delegating financial decisions

Di = 1 Di = 2 Di = 3 Di = 4 Di = 5 Selection

Female -0.035*** -0.047*** 0.028*** 0.042*** 0.012** -0.002

(0.01) (0.02) (0.01) (0.02) (0.01) (0.03)
Age -0.001 -0.001 0.000 0.001 0.000 0.007
(0.00) (0.01) (0.00) (0.00) (0.00) (0.01)
Age squared -0.000 -0.000 0.000 0.000 0.000 -0.000
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Years school 0.005*** 0.006*** -0.004*** -0.005*** -0.001** 0.008**
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Self-employed -0.000 -0.000 0.000 0.000 0.000 0.018
(0.01) (0.02) (0.01) (0.02) (0.00) (0.03)
Retired 0.008 0.010 -0.007 -0.009 -0.002 -0.034
(0.02) (0.02) (0.02) (0.02) (0.01) (0.04)
North 0.022* 0.027* -0.018* -0.024* -0.006* 0.019
(0.01) (0.02) (0.01) (0.01) (0.00) (0.03)
Log tot ind income -0.008 -0.010 0.007 0.009 0.002 -0.002
(0.01) (0.01) (0.01) (0.01) (0.00) (0.01)
FinW 50-100 th -0.050** -0.071** 0.037** 0.064** 0.019** 0.105***
(0.02) (0.03) (0.02) (0.03) (0.01) (0.03)
FinW 100-150 th -0.032 -0.043 0.025 0.039 0.011 0.131***
(0.02) (0.03) (0.02) (0.03) (0.01) (0.03)
FinW 150-250 th -0.053** -0.078*** 0.038** 0.071** 0.022** 0.149***
(0.02) (0.03) (0.01) (0.03) (0.01) (0.03)
FinW 250-500 th -0.048** -0.069** 0.035** 0.063** 0.019* 0.162***
(0.02) (0.03) (0.02) (0.03) (0.01) (0.03)
FinW 500+ th -0.026 -0.036 0.020 0.032 0.009 0.173***
(0.03) (0.04) (0.02) (0.03) (0.01) (0.04)
Financial literacy -0.000 -0.001 0.000 0.000 0.000 0.046***
(0.00) (0.01) (0.00) (0.01) (0.00) (0.01)
Self-confidence 0.026*** 0.032*** -0.022*** -0.029*** -0.007** 0.028*
(0.01) (0.01) (0.01) (0.01) (0.00) (0.02)
Experience -0.000 -0.000 0.000 0.000 0.000 0.008***
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Finance sector 0.111** 0.079*** -0.097** -0.077*** -0.016*** 0.054
(0.05) (0.02) (0.04) (0.02) (0.00) (0.06)
Trust advisor -0.076*** -0.093*** 0.063*** 0.084*** 0.022*** 0.046***
(0.01) (0.01) (0.01) (0.01) (0.00) (0.01)
Years at UC: 6-10 0.019 0.021 -0.016 -0.019 -0.005 0.089**
(0.03) (0.03) (0.02) (0.03) (0.01) (0.04)
Years at UC: 11-20 0.031 0.035 -0.027 -0.031 -0.008 0.208***
(0.03) (0.03) (0.02) (0.03) (0.01) (0.03)
Years at UC: > 20 0.018 0.022 -0.015 -0.020 -0.005 0.218***
(0.02) (0.03) (0.02) (0.03) (0.01) (0.04)
Very risk tolerant 0.225***
(0.02)
Risk tolerant 0.127***
(0.03)
Risk averse 0.138***
(0.03)
Saving: 0% -0.138***
(0.03)

N 1581
Log-Lik -2173.711
ρ 0.188
ρ std. err. 41 (0.168)
Data: Unicredit 2007. Dependent variable: columns I-V, probability of delegating financial decisions
(Di = 1, ..., 5); Column VI, probability of holding risky assets. Model: Ordered Probit with selection.
Exclusion restrictions (Column VI) are risk preferences; zero saving rate. Standard errors are robust to
heteroskedasticity. Significance: *** p<0.01, ** p<0.05, * p<0.1.
 Table 9: Investing autonomously or delegating financial decisions

Di = 1 Di = 2 Di = 3 Di = 4 Di = 5
Female -0.030*** -0.056*** 0.026*** 0.049*** 0.011**
(0.01) (0.02) (0.01) (0.02) (0.00)
Age 0.000 0.000 -0.000 -0.000 -0.000
(0.00) (0.01) (0.00) (0.01) (0.00)
Age squared -0.000 -0.000 0.000 0.000 0.000
(0.00) (0.00) (0.00) (0.00) (0.00)
Years school 0.004*** 0.008*** -0.004*** -0.007*** -0.001***
(0.00) (0.00) (0.00) (0.00) (0.00)
Self-employed 0.000 0.000 -0.000 -0.000 -0.000
(0.01) (0.02) (0.01) (0.02) (0.00)
Retired 0.005 0.008 -0.004 -0.007 -0.001
(0.01) (0.02) (0.01) (0.02) (0.00)
North 0.016 0.029 -0.015 -0.025 -0.005
(0.01) (0.02) (0.01) (0.02) (0.00)
Center -0.006 -0.011 0.006 0.010 0.002
(0.01) (0.02) (0.01) (0.02) (0.00)
Log tot ind income -0.007 -0.012 0.007 0.011 0.002
(0.01) (0.01) (0.01) (0.01) (0.00)
FinW 50-100 th -0.035** -0.070** 0.029*** 0.062** 0.014*
(0.01) (0.03) (0.01) (0.03) (0.01)
FinW 100-150 th -0.021 -0.039 0.018 0.034 0.008
(0.02) (0.03) (0.01) (0.03) (0.01)
FinW 150-250 th -0.038*** -0.078** 0.031*** 0.069** 0.017*
(0.01) (0.03) (0.01) (0.03) (0.01)
FinW 250-500 th -0.033** -0.065** 0.028*** 0.058** 0.013*
(0.01) (0.03) (0.01) (0.03) (0.01)
FinW 500+ th -0.015 -0.028 0.013 0.024 0.005
(0.02) (0.04) (0.02) (0.04) (0.01)
Financial literacy -0.012** -0.003 0.037*** -0.017** -0.005**
(0.01) (0.01) (0.01) (0.01) (0.00)
Self-confidence 0.022*** 0.039*** -0.021*** -0.033*** -0.007***
(0.01) (0.01) (0.01) (0.01) (0.00)
Experience 0.000 0.001 -0.000 -0.000 -0.000
(0.00) (0.00) (0.00) (0.00) (0.00)
Finance sector 0.104** 0.105*** -0.104** -0.091*** -0.014***
(0.05) (0.02) (0.04) (0.02) (0.00)
Trust advisor -0.085*** -0.018 -0.009 0.086*** 0.026***
(0.01) (0.02) (0.02) (0.01) (0.00)
Years at UC: 6-10 0.024 0.038 -0.024 -0.032 -0.006
(0.02) (0.03) (0.02) (0.03) (0.00)
Years at UC: 11-20 0.037* 0.057** -0.036* -0.048** -0.009**
(0.02) (0.03) (0.02) (0.02) (0.00)
Years at UC: > 20 0.024 0.042 -0.023 -0.036 -0.007
(0.02) (0.03) (0.02) (0.03) (0.01)

N obs 1116
Log-Lik -1419.615
Unicredit 2007. Dep Var: probability of delegating financial decisions (Di = 1, ..., 5),
where Di =1: I decide completely autonomously, the bank executes my decisions; Di =2:
I tell bank/advisor how I intend to invest and ask for their opinion; Di =3: I consider
bank/advisor proposals before deciding; Di =4: I mostly rely on bank/advisor for my
investment decisions; Di =5: I let bank/advisor decide everything. Model: Generalized
Ordered Probit (marginal effects reported).42
Sub-sample of investors holding risky assets.
Standard errors reported in parentheses are robust to heteroskedasticity. Significance:
*** p<0.01, ** p<0.05, * p<0.1.
Table 10: Investing autonomously or delegating – Robustness on financial
literacy index

Di = 1 Di = 2 Di = 3 Di = 4 Di = 5

Financial literacy 1 -0.0100** -0.0023 0.0298*** -0.0137** -0.0039**

(0.005) (0.009) (0.008) (0.006) (0.002)

Financial literacy 2 -0.0070* -0.0019 0.0208*** -0.0084 -0.0035**

(0.004) (0.007) (0.008) (0.006) (0.002)

Financial literacy 3 -0.0033 0.0027 0.0141** -0.0096* -0.0040***

(0.004) (0.007) (0.007) (0.005) (0.002)

Financial literacy 4 -0.0016 0.0023 0.0078 -0.0054 -0.0031**

(0.003) (0.005) (0.005) (0.004) (0.001)
Unicredit 2007. Dep Var: probability of delegating financial decisions (Di = 1, ..., 5),
where Di =1: I decide completely autonomously, the bank executes my decisions;
Di =2: I tell bank/advisor how I intend to invest and ask for their opinion;
Di =3: I consider bank/advisor proposals before deciding; Di =4: I mostly rely
on bank/advisor for my investment decisions; Di =5: I let bank/advisor decide ev-
erything. Model: Generalized Ordered Probit (marginal effects reported). Defi-
nition of financial literacy indices: Financial literacy 1: the baseline (Guiso and
Jappelli, 2008), re-scaled (10 × (Inf lation + Interest + Diversif 1 + Diversif 2 +
Risk1 + Risk2 + Risk3 + Risk4)/8; Financial literacy 2: 10 × [Inf lation + Interest +
Diversif 1 + Diversif 2 + (Risk1 + Risk2 + Risk3 + Risk4)/4]/5; Financial literacy
3: 10 × [Interest + Diversif 1 + Diversif 2 + (Risk1 + Risk2 + Risk3 + Risk4)/4]/4;
Financial literacy 4: 10 × [Interest + Diversif 1 + Diversif 2]/3. Sub-sample of in-
vestors holding risky assets. Regressors not reported: same covariates as in Table 9.
Standard errors reported in parentheses are robust to heteroskedasticity. Significance:
*** p<0.01, ** p<0.05, * p<0.1.

43
Table 11: Investing autonomously or delegating – Robustness on
bank/broker relationships

Di = 1 Di = 2 Di = 3 Di = 4 Di = 5

Sample: Unicredit main or only bank (baseline) (N = 1,116)

Financial literacy -0.012** -0.003 0.037*** -0.017** -0.005**
(0.01) (0.01) (0.01) (0.01) (0.00)

Sample: Unicredit only bank (N = 802)

Financial literacy -0.016** 0.005 0.033*** -0.017* -0.005
(0.01) (0.01) (0.01) (0.01) (0.00)

Sample: Unicredit main/only bank

and use broker never/seldom/sometimes (N = 847)
Financial literacy -0.012 0.002 0.032*** -0.016* -0.005**
(0.01) (0.01) (0.01) (0.01) (0.00)

Sample: Unicredit main/only bank

and use broker never/seldom (N = 705)
Financial literacy -0.012 0.001 0.037*** -0.019* -0.007**
(0.01) (0.01) (0.01) (0.01) (0.00)
Unicredit 2007. Dep Var: probability of delegating financial decisions (Di =
1, ..., 5), where Di =1: I decide completely autonomously, the bank executes my
decisions; Di =2: I tell bank/advisor how I intend to invest and ask for their opin-
ion; Di =3: I consider bank/advisor proposals before deciding; Di =4: I mostly
rely on bank/advisor for my investment decisions; Di =5: I let bank/advisor de-
cide everything. Model: Generalized Ordered Probit. Regressors not reported:
same covariates as in Table 9. Standard errors are robust to heteroskedasticity.
Significance: *** p<0.01, ** p<0.05, * p<0.1.

44
 Table 12: Financial literacy and length of bank relationship

Whole Use bank Use bank (Di = 3) (Di = 3)

sample often or more often and do not
very often than friends use brokers

Years at UC: 6-10 -0.243 -0.295 -0.412* -0.102 0.144

(0.15) (0.27) (0.25) (0.25) (0.28)
Years at UC: 11-20 -0.102 0.019 -0.035 -0.036 0.090
(0.15) (0.27) (0.24) (0.23) (0.26)
Years at UC: > 20 -0.018 0.006 0.070 -0.036 0.010
(0.15) (0.26) (0.23) (0.21) (0.26)

N obs 1116 393 475 429 320

Adj. R2 0.121 0.089 0.127 0.129 0.149
Unicredit 2007. Dep Var: Financial literacy (baseline). Model: linear regression model es-
timated by OLS. Standard errors are robust to heteroskedasticity. Regressors not reported:
gender, age, education, occupational status, macro-regions, log income, financial wealth cat-
egories, trust, self-confidence, experience, working in the financial sector. Significance: ***
p<0.01, ** p<0.05, * p<0.1.

Table 13: First stage for financial literacy endogeneity

Dep var: Fin Lit (UCS)

Experience 0.018***
(0.00)
Regional Fin Lit (SHIW) 0.426**
(0.15)

N obs 1116
F excl instr 18.71
Hansen J 1.893
Hansen J p-val 0.169
Endog test 0.200
Endog test p-val 0.655
Unicredit 2007. Dep Var: Financial Literacy (baseline). Model:
linear model estimated by GMM (only the first stage is reported).
Standard errors reported in parentheses are robust to heteroskedas-
ticity and clustering on regions. Regressors not reported: gender,
age, education, occupational status, macro-regions, financial wealth
categories, log individual income, self-confidence, financial sector
dummy, trust, length of bank relationship. Significance: *** p<0.01,
** p<0.05, * p<0.1.

45
Table 14: Investing autonomously or delegating (controlling for financial
literacy endogeneity)

Di = 1 Di = 2 Di = 3 Di = 4 Di = 5

Financial literacy -0.018 -0.026 0.085** -0.028 -0.013

(0.03) (0.05) (0.04) (0.04) (0.01)
Fitted residuals 0.007 0.028 -0.057 0.012 0.010
(0.03) (0.05) (0.04) (0.04) (0.01)

N obs 1116
Log-Lik -1417.376
Unicredit 2007. Dep Var: probability of delegating financial decisions (Di =
1, ..., 5), where Di =1: I decide completely autonomously, the bank executes my
decisions; Di =2: I tell bank/advisor how I intend to invest and ask for their opin-
ion; Di =3: I consider bank/advisor proposals before deciding; Di =4: I mostly
rely on bank/advisor for my investment decisions; Di =5: I let bank/advisor
decide everything. Model: Generalized Ordered Probit, controlling for financial
literacy endogeneity via control function approach (marginal effects reported). In-
struments for financial literacy: average financial literacy at regional level (SHIW)
and experience with financial products (UCS). Bootstrapped standard errors (200
repetitions) are robust to heteroskedasticity and clustering at regional level. Re-
gressors not reported: same covariates as in Table 9. Sub-sample of investors
holding risky assets. Significance: *** p<0.01, ** p<0.05, * p<0.1.

46
 Our papers can be downloaded at:
http://cerp.unito.it/index.php/en/publications

CeRP Working Paper Series

N° 117/11 Riccardo Calcagno Financial Literacy and the Demand for Financial Advice
Chiara Monticone
N° 116/11 Annamaria Lusardi Financially Fragile Households: Evidence and Implications
Daniel Schneider
Peter Tufano
N° 115/11 Adele Atkinson Assessing financial literacy in 12 countries: an OECD Pilot
Flore-Anne Messy Exercise
N° 114/11 Leora Klapper Financial Literacy and Retirement Planning in View of a
Georgios A. Panos Growing Youth Demographic: The Russian Case
N° 113/11 Diana Crossan Financial Literacy and Retirement Planning in New Zealand
David Feslier
Roger Hurnard
N° 112/11 Johan Almenberg Financial Literacy and Retirement Planning in Sweden
Jenny Säve-Söderbergh
N° 111/11 Elsa Fornero Financial Literacy and Pension Plan Participation in Italy
Chiara Monticone
N° 110/11 Rob Alessie Financial Literacy, Retirement Preparation and Pension
Maarten Van Rooij Expectations in the Netherlands
Annamaria Lusardi
N° 109/11 Tabea Bucher-Koenen Financial Literacy and Retirement Planning in Germany
Annamaria Lusardi
N° 108/11 Shizuka Sekita Financial Literacy and Retirement Planning in Japan

N° 107/11 Annamaria Lusardi Financial Literacy and Retirement Planning in the United States
Olivia S. Mitchell
N° 106/11 Annamaria Lusardi Financial Literacy Around the World: An Overview
Olivia S. Mitchell
N° 105/11 Agnese Romiti Immigrants-natives complementarities in production: evidence
from Italy
N° 104/11 Ambrogio Rinaldi Pension awareness and nation-wide auto-enrolment: the Italian
experience
N° 103/10 Fabio Bagliano The Great Recession: US dynamics and spillovers to the world
Claudio Morana economy
N° 102/10 Nuno Cassola The 2007-? financial crisis: a money market perspective
Claudio Morana
N° 101/10 Tetyana Dubovyk Macroeconomic Aspects of Italian Pension Reforms of 1990s

N° 100/10 Laura Piatti L’educazione e la comunicazione previdenziale - Il caso italiano

Giuseppe Rocco
N° 99/10 Fabio Bagliano The effects of US economic and financial crises on euro area
Claudio Morana convergence
N° 98/10 Annamaria Lusardi The Economic Crisis and Medical Care Usage
Daniel Schneider
Peter Tufano
N° 97/10 Carlo Maccheroni E se l’aspettativa di vita continuasse la sua crescita? Alcune
Tiziana Barugola ipotesi per le generazioni italiane 1950-2005
N° 96/10 Riccardo Calcagno Portfolio Choice and Precautionary Savings
Mariacristina Rossi
N° 95/10 Flavia Coda Moscarola Parents/children “deals”: Inter-Vivos Transfers and Living
Elsa Fornero Proximity
Mariacristina Rossi
N° 94/10 John A. List So you want to run an experiment, now what? Some Simple
Sally Sadoff Rules of Thumb for Optimal Experimental Design
Mathis Wagner

N° 93/10 Mathis Wagner The Heterogeneous Labor Market Effects of Immigration

N° 92/10 Rob Alessie Retirement choices in Italy: what an option value model tells us
Michele Belloni
N° 91/09 Annamaria Lusardi Financial Literacy among the Young:
Olivia S. Mitchell Evidence and Implications for Consumer Policy
Vilsa Curto
N° 90/09 Annamaria Lusardi How Ordinary Consumers Make Complex Economic Decisions:
Olivia S. Mitchell Financial Literacy and Retirement Readiness
N° 89/09 Elena Vigna Mean-variance inefficiency of CRRA and CARA utility
functions for portfolio selection in defined contribution pension
schemes
N° 88/09 Maela Giofré Convergence of EMU Equity Portfolios

N° 87/09 Elsa Fornero Adequacy of Saving for Old Age in Europe

Annamaria Lusardi
Chiara Monticone
N° 86/09 Margherita Borella Microsimulation of Pension Reforms: Behavioural versus
Flavia Coda Moscarola Nonbehavioural Approach
N° 85/09 Cathal O’Donoghue The Life-Cycle Income Analysis Model (LIAM): A Study of a
John Lennon Flexible Dynamic Microsimulation Modelling Computing
Stephen Hynes Framework
N° 84/09 Luca Spataro Il sistema previdenziale italiano dallo shock petrolifero del 1973
al Trattato di Maastricht del 1993
N° 83/09 Annamaria Lusardi Debt Literacy, Financial Experiences, and Overindebtedness
Peter Tufano
N° 82/09 Carolina Fugazza Time and Risk Diversification in Real Estate Investments:
Massimo Guidolin Assessing the Ex Post Economic Value
Giovanna Nicodano
N° 81/09 Fabio Bagliano Permanent and Transitory Dynamics in House Prices and
Claudio Morana Consumption: Cross-Country Evidence
N° 80/08 Claudio Campanale Learning, Ambiguity and Life-Cycle Portfolio Allocation

N° 79/08 Annamaria Lusardi Increasing the Effectiveness of Financial Education in the

Workplace
N° 78/08 Margherita Borella Le pensioni dei lavoratori parasubordinati: prospettive dopo un
Giovanna Segre decennio di gestione separata
N° 77/08 Giovanni Guazzarotti The Annuity Market in an Evolving Pension System: Lessons
Pietro Tommasino from Italy
N° 76/08 Riccardo Calcagno The Effect of House Prices on Household Saving: The Case of
Elsa Fornero Italy
Mariacristina Rossi
N° 75/08 Harold Alderman Preschool Nutrition and Subsequent Schooling Attainment:
Johannes Hoogeveen Longitudinal Evidence from Tanzania
Mariacristina Rossi
N° 74/08 Maela Giofré Information Asymmetries and Foreign Equity Portfolios:
Households versus Financial Investors
N° 73/08 Michele Belloni The Importance of Financial Incentives on Retirement Choices:
Rob Alessie New Evidence for Italy
N° 72/08 Annamaria Lusardi Planning and Financial Literacy: How Do Women Fare?
Olivia Mitchell
N° 71/07 Flavia Coda Moscarola Women participation and caring decisions: do different
institutional frameworks matter? A comparison between Italy
and The Netherlands

N° 70/07 Radha Iyengar The Political Economy of the Disability Insurance. Theory and
Giovanni Mastrobuoni Evidence of Gubernatorial Learning from Social Security
Administration Monitoring

N° 69/07 Carolina Fugazza Investing in Mixed Asset Portfolios: the Ex-Post Performance
Massimo Guidolin
Giovanna Nicodano

N° 68/07 Massimo Guidolin Small Caps in International Diversified Portfolios

Giovanna Nicodano

N° 67/07 Carolina Fugazza International Diversification and Labor Income Risk

Maela Giofré
Giovanna Nicodano

N° 66/07 Maarten van Rooij Financial Literacy and Stock Market Participation
Annamaria Lusardi
Rob Alessie
N° 65/07 Annamaria Lusardi Household Saving Behavior: The Role of Literacy, Information
and Financial Education Programs
(Updated version June 08: “Financial Literacy: An Essential Tool
for Informed Consumer Choice?”)
N° 64/07 Carlo Casarosa Rate of Growth of Population, Saving and Wealth in the Basic
Luca Spataro Life-cycle Model when the Household is the Decision Unit

N° 63/07 Claudio Campanale Life-Cycle Portfolio Choice: The Role of Heterogeneous Under-
Diversification
N° 62/07 Margherita Borella Does Consumption Respond to Predicted Increases in Cash-on-
Elsa Fornero hand Availability? Evidence from the Italian “Severance Pay”
Mariacristina Rossi

N° 61/07 Irina Kovrova Effects of the Introduction of a Funded Pillar on the Russian
Household Savings: Evidence from the 2002 Pension Reform
N° 60/07 Riccardo Cesari La Previdenza Complementare in Italia:
Giuseppe Grande Caratteristiche, Sviluppo e Opportunità per i Lavoratori
Fabio Panetta
N° 59/07 Riccardo Calcagno An Analysis of the Effects of the Severance Pay Reform on
Roman Kraeussl Credit to Italian SMEs
Chiara Monticone
N° 58/07 Elisa Luciano
Jaap Spreeuw Modelling Stochastic Mortality for Dependent Lives
Elena Vigna
N° 57/07 Giovanni Mastrobuoni Heterogeneity in Intra-Monthly Consumption. Patterns, Self-
Matthew Weinberg Control, and Savings at Retirement
N° 56/07 John A. Turner Why Some Workers Don’t Take 401(k) Plan Offers:
Satyendra Verma Inertia versus Economics
N° 55/06 Antonio Abatemarco On the Measurement of Intra-Generational Lifetime
Redistribution in Pension Systems
N° 54/06 Annamaria Lusardi Baby Boomer Retirement Security: The Roles of Planning,
Olivia S. Mitchell Financial Literacy, and Housing Wealth

N° 53/06 Giovanni Mastrobuoni Labor Supply Effects of the Recent Social Security Benefit Cuts:
Empirical Estimates Using Cohort Discontinuities
N° 52/06 Luigi Guiso Information Acquisition and Portfolio Performance
Tullio Jappelli
N° 51/06 Giovanni Mastrobuoni The Social Security Earnings Test Removal. Money Saved or
Money Spent by the Trust Fund?
N° 50/06 Andrea Buffa Do European Pension Reforms Improve the Adequacy of
Chiara Monticone Saving?
N° 49/06 Mariacristina Rossi Examining the Interaction between Saving and Contributions to
Personal Pension Plans. Evidence from the BHPS
N° 48/06 Onorato Castellino Public Policy and the Transition to Private Pension Provision in
Elsa Fornero the United States and Europe
N° 47/06 Michele Belloni Actuarial Neutrality when Longevity Increases: An Application
Carlo Maccheroni to the Italian Pension System
N° 46/05 Annamaria Lusardi Financial Literacy and Planning: Implications for Retirement
Olivia S. Mitchell Wellbeing
N° 45/05 Claudio Campanale Increasing Returns to Savings and Wealth Inequality

N° 44/05 Henrik Cronqvist Advertising and Portfolio Choice

N° 43/05 John Beshears The Importance of Default Options for Retirement Saving
James J. Choi Outcomes: Evidence from the United States
David Laibson
Brigitte C. Madrian
N° 42/05 Margherita Borella Distributive Properties of Pensions Systems: a Simulation of the
Flavia Coda Moscarola Italian Transition from Defined Benefit to Defined Contribution
N° 41/05 Massimo Guidolin Small Caps in International Equity Portfolios: The Effects of
Giovanna Nicodano Variance Risk.

N° 40/05 Carolina Fugazza Investing for the Long-Run in European Real Estate. Does
Massimo Guidolin Predictability Matter?
Giovanna Nicodano
N° 39/05 Anna Rita Bacinello Modelling the Surrender Conditions in Equity-Linked Life
Insurance
N° 38/05 Carolina Fugazza An Empirical Assessment of the Italian Severance Payment
Federica Teppa (TFR)
N° 37/04 Jay Ginn Actuarial Fairness or Social Justice?
A Gender Perspective on Redistribution in Pension Systems
N° 36/04 Laurence J. Kotlikoff Pensions Systems and the Intergenerational Distribution of
Resources
N° 35/04 Monika Bütler What Triggers Early Retirement. Results from Swiss Pension
Olivia Huguenin Funds
Federica Teppa

N° 34/04 Chourouk Houssi Le Vieillissement Démographique :

Problématique des Régimes de Pension en Tunisie
N° 33/04 Elsa Fornero A Comparative Analysis of the Costs of Italian Individual
Carolina Fugazza Pension Plans
Giacomo Ponzetto

N° 32/04 Angelo Marano Older Workers and Pensioners: the Challenge of Ageing on the
Paolo Sestito Italian Public Pension System and Labour Market
N° 31/03 Giacomo Ponzetto Risk Aversion and the Utility of Annuities

N° 30/03 Bas Arts A Switch Criterion for Defined Contribution Pension Schemes
Elena Vigna
N° 29/02 Marco Taboga The Realized Equity Premium has been Higher than Expected:
Further Evidence
N° 28/02 Luca Spataro New Tools in Micromodeling Retirement Decisions: Overview
and Applications to the Italian Case
N° 27/02 Reinhold Schnabel Annuities in Germany before and after the Pension Reform of
2001
N° 26/02 E. Philip Davis Issues in the Regulation of Annuities Markets

N° 25/02 Edmund Cannon The Behaviour of UK Annuity Prices from 1972 to the Present
Ian Tonks
N° 24/02 Laura Ballotta Valuation of Guaranteed Annuity Conversion Options
Steven Haberman
N° 23/02 Ermanno Pitacco Longevity Risk in Living Benefits

N° 22/02 Chris Soares Annuity Risk: Volatility and Inflation Exposure in Payments
Mark Warshawsky from Immediate Life Annuities
N° 21/02 Olivia S. Mitchell Annuities for an Ageing World
David McCarthy
N° 20/02 Mauro Mastrogiacomo Dual Retirement in Italy and Expectations

N° 19/02 Paolo Battocchio Optimal Portfolio Strategies with Stochastic Wage Income and
Francesco Menoncin Inflation: The Case of a Defined Contribution Pension Plan

N° 18/02 Francesco Daveri Labor Taxes and Unemployment: a Survey of the Aggregate
Evidence
N° 17/02 Richard Disney and The Labour Supply Effect of the Abolition of the Earnings Rule
Sarah Smith for Older Workers in the United Kingdom
N° 16/01 Estelle James and Annuities Markets Around the World: Money’s Worth and Risk
Xue Song Intermediation

N° 15/01 Estelle James How Can China Solve ist Old Age Security Problem? The
Interaction Between Pension, SOE and Financial Market Reform
N° 14/01 Thomas H. Noe Investor Activism and Financial Market Structure

N° 13/01 Michela Scatigna Institutional Investors, Corporate Governance and Pension Funds
N° 12/01 Roberta Romano Less is More: Making Shareholder Activism a Valuable
Mechanism of Corporate Governance
N° 11/01 Mara Faccio and Ameziane Institutional Shareholders and Corporate Governance: The Case
Lasfer of UK Pension Funds
N° 10/01 Vincenzo Andrietti and Vincent Pension Portability and Labour Mobility in the United States.
Hildebrand New Evidence from the SIPP Data
N° 9/01 Hans Blommestein Ageing, Pension Reform, and Financial Market Implications in
the OECD Area
N° 8/01 Margherita Borella Social Security Systems and the Distribution of Income: an
Application to the Italian Case
N° 7/01 Margherita Borella The Error Structure of Earnings: an Analysis on Italian
Longitudinal Data
N° 6/01 Flavia Coda Moscarola The Effects of Immigration Inflows on the Sustainability of the
Italian Welfare State
N° 5/01 Vincenzo Andrietti Occupational Pensions and Interfirm Job Mobility in the
European Union. Evidence from the ECHP Survey
N° 4/01 Peter Diamond Towards an Optimal Social Security Design

N° 3/00 Emanuele Baldacci Le caratteristiche socio economiche dei pensionati in Italia.

Luca Inglese Analisi della distribuzione dei redditi da pensione (only available
in the Italian version)
N° 2/00 Pier Marco Ferraresi Social Security Transition in Italy: Costs, Distorsions and (some)
Elsa Fornero Possible Correction
N° 1/00 Guido Menzio Opting Out of Social Security over the Life Cycle