NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pseudo-wealth and Consumption Fluctuations

Martin Guzman, Joseph E. Stiglitz

NBER Working Paper No. 22838
Issued in November 2016
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics

This paper provides an explanation for situations in which the state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth—individuals’ perceived wealth that is derived from heterogeneous beliefs and expectations of gains in a bet. This wealth is divorced from real assets that may exist in society. The creation of a market for bets will imply positive pseudo-wealth. Changes in the differences of prior beliefs will lead to changes in expected wealth and hence to changes in consumption, implying ex-post intertemporal individual and aggregate consumption misallocations and instabilities. Thus, in the environment we describe, completing markets increases macroeconomic volatility, raising unsettling welfare questions.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22838

Users who downloaded this paper also downloaded* these:
Stiglitz w22837 The Theory of Credit and Macro-economic Stability
Card, Cardoso, Heining, and Kline w22850 Firms and Labor Market Inequality: Evidence and Some Theory
Kueng, Li, and Yang w22840 The Impact of Emerging Market Competition on Innovation and Business Strategy
Herkenhoff, Phillips, and Cohen-Cole w22846 The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship
Deryugina and Kirwan w22845 Does The Samaritan's Dilemma Matter? Evidence From U.S. Agriculture
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us