The Academy of Financial Services 35th Annual Meeting

Perception-Bias; Financial-Knowledge; Two-step-procedure; Surrogate-residual; Mixed-effects-model;

Perception biases, individuals’ tendency to either overestimate or underestimate their abilities, exist in the domain of financial knowledge. This study utilizes data from a nationally representative sample of 26,218 American adults, provided by the 2018 National Financial Capability Study. A two-step procedure is used to analyze the data. The surrogate residuals are extracted from ordered-probit regression models in the first step to provide appropriate measures for the perception biases in financial knowledge. The second step of the two-step procedure estimates variable-intercept mixed-effects models to identify the predictors of perception biases in the financial knowledge of American adults.