Socioeconomic Status and Learning from Financial Information
39 Pages Posted: 1 Jun 2015
Date Written: May 2015
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.
Suggested Citation: Suggested Citation