Breaking Bad Financial Habits: How LLM Conversations Correct Financial Misconceptions
For financial educators and policymakers, this work identifies conditions under which LLMs can serve as scalable tools to correct costly financial misconceptions.
The paper demonstrates that purposefully designed LLMs can durably correct financial misconceptions, but only when the LLM has corrective intent and the recipient is receptive to the explanation. Without these factors, LLMs may entrench misconceptions.
Financial misconceptions carry direct economic costs, from panic selling to equity market avoidance, yet they are notoriously resistant to correction. Traditional financial literacy interventions are constrained by cost, reach, and a persistent gap between knowledge and behavioral change. Across three pre-registered studies, we find that purposefully designed LLMs can durably correct financial misconceptions. Critically, two factors are necessary for this effect. First, corrective intent: LLMs prompted only to discuss a misconception produce corrections no better than unassisted self-reflection, and undirected LLM conversations can actively entrench misconceptions. Second, recipient receptivity: financial concepts are often foreign to the investors who misapply them, and LLM responses pitched below a participant's financial sophistication are judged as less credible and produce substantially weaker corrections. LLMs thus offer a scalable alternative to traditional financial literacy intervention, but only when designed with both factors in mind.