Keeping up with the Joneses: Social Status and Wealth Inequality in a Leveraged Asset Market

46 Pages Posted: 2 Jul 2019

See all articles by Cary A. Deck

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies

Li Hao

University of Arkansas - Sam M. Walton College of Business

Weineng Xu

University of Wisconsin-Whitewater

Timothy J. Yeager

University of Arkansas - Sam M. Walton College of Business

Date Written: July 1, 2019

Abstract

We hypothesize that growing wealth inequality has exacerbated leveraged asset bubbles in the wealthiest nations over the last several decades through a “keeping up with the Joneses” effect. Rising inequality strengthens the desire of households to improve their social status by owning assets such as homes demanded by those with wealth. Given easy access to credit, relatively low-wealth individuals use leverage to bid up asset prices. We test this theory within the popular asset market experiment of Smith, Suchanek, and Williams (1988) where we combine the option to borrow with treatments for wealth inequality and social status. We find that the social status effect indeed leads to asset overpricing, and the impact is the biggest when combining social status with wealth inequality. On the other hand, wealth inequality alone does not lead to greater asset bubbles.

Keywords: wealth inequality, keeping up with the Joneses, asset market experiment, asset bubbles

JEL Classification: G41, C92

Suggested Citation

Deck, Cary A. and Hao, Li and Xu, Weineng and Yeager, Timothy J., Keeping up with the Joneses: Social Status and Wealth Inequality in a Leveraged Asset Market (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3413181 or http://dx.doi.org/10.2139/ssrn.3413181

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Li Hao

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

Weineng Xu

University of Wisconsin-Whitewater ( email )

Timothy J. Yeager (Contact Author)

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

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