آموزش امور مالی و ترجیحات اجتماعی: شواهد تجربی

Abstract What impact does a finance education have on the social preferences and the resulting behaviors of individuals? Experiments of a free riding game are conducted where a wealth-creating investment decision is made. The contribution benefits the group, but the incentives are such that an individual, lacking social preferences, would rather make no contribution and free ride off others. It is shown that as one’s education in finance increases, less free riding occurs and more wealth is generated. Thus, education provided in finance promotes pro-social choices that generate wealth even when external incentives are absent.

1. Introduction Financial transactions can, typically, be characterized by investments being made in the expectation of wealth creation. The returns, though, are uncertain. Oftentimes, the uncertainty of an investment is the risk associated with the behavior of the recipient. A self-interested individual may choose actions that benefit him, but are detrimental to the investor. Social preferences, where a person cares not only about individual gain, but also the well-being of others, can conceptually enhance aggregate wealth. While there are numerous types of market failures that exhibit these general features, an example explored here is what is known as the free rider problem.1 In it, a group of individuals or organizations are to work together to achieve a goal. All benefit when the goal is achieved, but do not necessarily have the incentive to expend their own resources to achieve it. For example, a network of investment banks may collectively finance a development project. Oversight of the project, including proper use of the funds, competitive bidding by suppliers, etc., thrives if all members of the network participate. The incentives of each individual organization, though, are to reduce expenses and free ride off of the efforts of the others. As another example, a brokerage firm may, rather than invest the time and resources to conduct independent market analysis, simply rely on non-independent sources of information without providing appropriate research and investigation. Consequently, the CFA Institute includes a diligence and reasonable basis clause in its Standards of Professional Conduct (CFA Institute, 2010). While these are just two examples of free riding in finance, in general, free riding leads to an underprovision of wealth-generating activities and, potentially, market failure. Consequently, it is worthwhile to investigate what influences the preferences of future financial professionals. While pro-social preferences can improve upon the free riding problem, the question arises as to what factors lead to higher levels of these improvements? Previous research has indicated that diverse factors such as gender (Sell, 1997), culture, and even brain functioning using fMRI measurements (Krajbich et al., 2009) are associated with differences in free riding behavior. Here, I explore the hypothesis that education can affect these preferences and resulting behaviors. Specifically, I investigate whether an education in finance encourages or discourages wealth-creating investments when the financial environment does not provide adequate institutional incentives to do so. Previous research suggests that education is important, but does not provide a clear picture of the potential effect. For example, research in economics has investigated whether an economics education distorts individual behaviors outside of the classroom. Marwell and Ames (1981) conduct experiments on the free rider game, as is investigated here, and show that economics students free ride more than others. Carter and Irons (1991) provide results of bargaining games showing that economists make lower offers. Frank et al. (1993) report experiments of the prisoner’s dilemma and show that economics students cooperate less. Frank and Schulze (2000) conduct corruption experiments and illustrate that they are more likely to take corrupt bribes. Using empirical data of charitable donations at a university, Frey and Meier (2003) give evidence that economics students contribute less. Research in business education, in general, has shown that it also correlates with lower charitable donations (Meier and Frey, 2004). Taken together and given that finance and economics education share much in common, this body of research casts doubt on the potential effect of a finance education on social preferences.2 The dilemma of research such as this is to disentangle selection effects from learning effects. Does the education itself change behavior or are those who choose to study the field that is predisposed to act differently? Thus, to understand the impact of finance education on social preferences; one must be able to isolate the effect of learning. One attempt has been made to separate the two drivers of outcomes. McCannon and Peterson (forthcoming) explore the selection versus learning issue for a finance education, but in a different institutional environment. The environment considered is an investment game where contract enforcement does not exist. Thus, it studies investing behavior. They show that those who choose to study finance make lower investments and return less, but provide evidence suggesting that a finance education reverses these preferences. The econometric method used interacts major and age to separate selection and learning. A direct link between behavior and coursework taken is not done and, consequently, the marginal impact cannot be assessed. Also, it does not contrast personal gain from benefit to others and, therefore, does not fully explore the influence of “other-regarding” preferences. Thus, the work presented here clarifies the issue by studying a social setting where personal and other’s gain is in conflict and directly investigates the marginal impact of finance course. The objective here, then, is to investigate whether enhanced coursework in finance discourages free riding, as may be suggested by the work McCannon and Peterson (forthcoming), or does it promote selfish gain at the expense of others, as shown to be the case in economics education by Marwell and Ames (1981). Previous research in finance tends to focus on the related issue of financial literacy. For example, Wang (2009) and Sjöberg and Engelberg (2009) consider the relationship between financial literacy, education, and risk taking. Peng et al. (2007) presents survey evidence that personal investment education correlates with investment knowledge and savings behavior. Bernheim and Garrett (2003) study information on employer-based financial education and find that these programs improve savings. Likewise, Chira et al. (2012) find that educational attainment correlates with student loan choices. Hence, the work presented here contributes to the understanding of the link between financial education and outcomes. Experimental research analyzing the free rider game has a long history. See Ledyard (1995), Zellmer (2003), and Chaudhuri (2011) for comprehensive literature reviews. In the free rider game subjects play in groups. Each has an endowment and chooses how much to invest in a common fund, keeping the residual as personal gain. Contributions to the common fund grow and are shared equally amongst the group. Growth of the fund is such that while aggregate wealth expands as more is contributed, the division is such that an individual receives back less from every dollar invested than by retaining it. Thus, a guaranteed negative return arises. Here each subject is endowed with five “experimental dollars”. The common fund triples and is evenly shared amongst the four members of the group. Hence, each dollar contributed returns only seventy-five cents. Hence, absent social preferences, the incentives are such that it is optimal to make no contribution and free ride on the donations of others. Dominating the research on the free riding game is an investigation of how institutional features, such as the endowment, group size, information, or the growth rate, affect contributions. The tactic here is to use the free rider game as an instrument to assess how external factors affect preferences and, thus, behaviors. The experimental methods are presented in Section 2. Section 3 provides the econometric results, while Section 4 concludes.

Conclusion Does an education in finance affect social preference? Specifically, does it promote wealth-improving behaviors even when there is no external enforcement mechanism? Experiments in the free rider game is conducted and analyzed to address this issue. It is shown that free riding decreases as the number of finance courses completed increases. Thus, a finance education promotes wealth creation. By investigating the marginal impact of finance coursework on behavior, I am able to directly identify the marginal impact of additional coursework. Thus, the learning effect is isolated from the selection effect, which has proven to be an obstacle in previous research. One limitation of the study is that without controlling students’ entire menu of coursework completed, along with other life developments, such as for example internships, it is still difficult to guarantee that it is indeed the work done in the classrooms that is changing individuals behavior outside of the classroom. The results are able to conclude, though, that selection effects, while also important, are not driving the results. The work, given the design and methods used, is unable to explore the mental mechanism that drives changes in individual preferences. Potentially either neuroscientific research or, at the very least, extensive survey methods need to be employed to identify exactly how finance education changes individual’s preferences. What the results show, though, is that the education is associated with changes in outside-the-classroom behavior. The results are consistent with changes in behavior, but the experimental methods cannot directly measure preferences. A remaining issue is a full explanation of the non-linear relationship. Evidence is presented that selection effects drive the initial downward relationship, while the finance education reverses the trend. Further investigation is needed to fully clarify the impacts. Future research should investigate other social preferences and the impact of finance education and training on them. Only one specific behavior is investigated here, free riding. While an important issue in banking and trading, other pro-social tendencies, such as altruism, reciprocity, hold-up problem, trust, and corruption also potentially merit investigation. The noteworthy finding here is that a finance education encourages other-regarding behaviors, which facilitate the creation of wealth. This stands in contrast to the related literature in behavioral economics. Additionally, the results presented here suggest that it is, in fact, the learning from the education that drives the outcome, rather than the selection effects as typically arises in research on the effects of an economics education. Thus, future investigations may want to identify the topics/material which encourages the good behaviors observed here.