Paolo Sodini, Stockholm School of Economics

More than Money: The Role of Inherited 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 highly correlate with wealth background. Counterfactuals 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). Early-adulthood heterogeneity in wealth, gifts and inheritances, and transmission of human capital across generations are not dominant determinants of wealth mobility.

Paolo Sodini is Professor of Finance at the Stockholm School of Economics and fellow at the Swedish House of Finance.

He is the director of MiDa – the Institute for Micro Data at SSE and SHoF and one of the founders of the European Network of Household Finance. His research focuses on Household Finance, the field of Financial Economics that studies how households use financial markets to achieve their goals. He has studied the welfare consequences of household financial mistakes, such as portfolio diversification and rebalancing, and the importance of sophistication in limiting financial losses.

He has also worked on the determinants of welfare inequality, in particular of the role of savings, financial risk taking and returns to wealth. His latest research focuses on real estate markets and explores the impact of homeownership on household economic behavior and gender differences in the housing market.

You can read more about Paolo Sodini here

CEBI contact: Søren Leth-Petersen