Breaking Bad Financial Habits: How LLM Conversations Correct Financial Misconceptions

TL;DR

This study demonstrates that carefully designed LLM conversations can durably correct financial misconceptions, offering a scalable alternative to traditional financial literacy interventions when specific factors are considered.

Contribution

It identifies key factors—corrective intent and recipient receptivity—that are essential for LLMs to effectively correct financial misconceptions.

Findings

LLMs can durably correct misconceptions when properly prompted.

Incorrect or undirected LLM conversations can reinforce misconceptions.

Credibility of LLM responses depends on matching recipient's financial sophistication.

Abstract

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.