Socioeconomic Status and Learning from Financial Information
The majority of lower socioeconomic status (SES) households do not have any stock investments, which is detrimental to wealth accumulation. Here, we examine one potential driver of this puzzling fact, namely, that SES may influence the process by which people learn from information in financial markets. In an experimental setting we find that low SES participants, relative to medium or high SES ones, form more pessimistic beliefs about the distribution of stock investment outcomes and are less likely to invest in stocks. The pessimism bias in assessing risky assets induced by low SES is robust to several ways of measuring one’s socioeconomic standing and it replicates out of sample. These results suggest that SES shapes in predictable ways people’s beliefs about financial assets, which in turn may induce large differences across households in their propensity to participate in financial markets.
We thank Stephan Siegel, seminar participants at the University of North Carolina, Duke University, New York University, and participants at the 2014 meeting of the Society for Neuroeconomics and 2015 American Economics Association meeting for helpful comments and discussion. Andreea Beciu, Luke Murray and Ryan Trocinsky provided excellent research assistance. All remaining errors are ours. Funding for this project was provided by the University of North Carolina, Northwestern University, and Babes-Bolyai University. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Kuhnen, Camelia M. & Miu, Andrei C., 2017. "Socioeconomic status and learning from financial information," Journal of Financial Economics, Elsevier, vol. 124(2), pages 349-372. citation courtesy of