Abstract
This paper investigates whether and how financial literacy could help improve fraud detection. Results demonstrate that fraud-detection ability increases with the improvement in one's financial literacy. In addition, several other variables such as one's participation in economic activities, having a healthy or risk-preferred household head, as well as active social interaction all show positive impacts on fraud detection. In contrast, some psychological factors, such as trusting strangers and regional factors like income inequality can have negative effects on it. Two potential mechanisms, the utilization of information channels and that of asset allocation channels, may help to develop this relationship.
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