Perceived wealth, cognitive sophistication and behavioral inattention

Assenza, Tiziana, Cardaci, Alberto and Delli Gatti, Dominico (2019) Perceived wealth, cognitive sophistication and behavioral inattention. TSE Working Paper, n. 19-1055, Toulouse

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Abstract

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.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2019
Place of Publication: Toulouse
Uncontrolled Keywords: perceived wealth, cognitive sophistication, behavioral inattention, laboratory, experiment, household debt, consumption
JEL Classification: C91 - Laboratory, Individual Behavior
D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 06 Dec 2019 10:33
Last Modified: 06 Dec 2019 10:33
["eprint_fieldname_oai_identifier" not defined]: oai:tse-fr.eu:123746
URI: http://publications.ut-capitole.fr/id/eprint/33501

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