Paolo Sodini, Stockholm School of Economics

More than Money: The Role of Inherited Preferences on Wealth Mobility

Abstract

We structurally estimate the individual attitudes that regulate wealth accumulation in a model that explains the wealth gap between individuals of different wealth backgrounds. To this purpose, we use rich micro-level data on the balance sheets, consumption, and risky investments of Swedish residents, in addition to wealth-based family background measured during the offspring's early adulthood. We find that patience and risk-taking highly correlate with parents' wealth status. Inherited preferences may explain 70\% of the wealth gap between adult individuals of non-rich backgrounds (making up 91 percent of the population) and very-rich backgrounds (2.2 percent of the population). Early-adulthood heterogeneity in wealth, gifts, 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