Becker Friedman Institute

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Socioeconomic Status and Learning from Financial Information

The majority of lower socioeconomic status (SES) households in the U.S. and Europe do not have any stock investments, which is detrimental to wealth accumulation. Here, we examine one explanation for this puzzling fact, namely, that economic adversity may influence how people learn from financial information. Using experimental and survey data from the U.S. and Romania, we find that lower SES individuals form more pessimistic beliefs about the distribution of stock returns and are less likely to invest in stocks. SES shapes people's beliefs about stocks, leading to large differences across households in their propensity to participate in financial markets.

Authors: 
Camelia Kuhnen, University of North Carolina
Andrei Mui, Babes-Bolyai University, Department of Psychology,
Publication Date: 
December, 2015
HCEO Working Groups: 
Publication Status: 
Document Number: 
2015-018
File Description: 
First version, November, 2015