Perceived Wealth, Cognitive Sophistication and Behavioral Inattention

Arbeitspapier

By means of a laboratory experiment, we show that, contrary to standard consumer theory, financially equivalent balance sheet profiles may be perceived as non fungible in a controlled frictionless environment with no probabilistic attributes. A large majority of subjects indeed have a bias in the perception of wealth, such that balance sheet composition matters: for a given net worth with values of assets and debt that are financially certain and risk-free, a greater asset-debt ratio implies greater perceived wealth. The predominance of this bias is explained by low cognitive sophistication and great inattention. Moreover, biased subjects are less patient, less debt averse, more likely to increase spending out of unexpected gains and report greater propensities to consume. A standard optimal consumption choice model, enriched with a rational but inattentive agent à la Gabaix (2014, 2019), aligns our key experimental findings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7992

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
• Subject: perceived wealth ; cognitive sophistication ; behavioral inattention ; laboratory experiment ; household debt ; consumption

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Assenza, Tiziana ; Cardaci, Alberto ; Gatti, Domenico Delli
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/214994
• Last update: 10.03.2025, 11:45 AM CET