More than Money: The Role of Preferences on Wealth Mobility

Department: Finance 

Speaker: Paolo Sodini (SSE) 

Room: T004

More than Money: The Role of Preferences on Wealth Mobility

Abstract

We estimate the preferences of individuals from different wealth backgrounds to explain
intergenerational wealth mobility. We use rich micro-level data on the balance sheets,
consumption, and risky investments of Swedish residents, together with family wealth
background measured during the offspring’s early adulthood. We find that patience and
risk tolerance are strongly correlated with wealth background. Counterfactual analyses
reveal that background-dependent preferences can explain at least 75 percent of the
wealth gap between adults of non-rich backgrounds (90 percent of the population) and
very-rich backgrounds (2.5 percent of the population). In contrast, early-adulthood
heterogeneity in wealth, gifts and inheritances, and intergenerational transmission of
human capital are not dominant determinants of wealth mobility.