Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334882 
Year of Publication: 
2025
Citation: 
[Journal:] Journal of Economic Interaction and Coordination [ISSN:] 1860-7128 [Volume:] 21 [Issue:] 1 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2025 [Pages:] 151-198
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
Existing evidence suggests that individuals often misperceive the value of their wealth. We examine the existence, direction, and magnitude of these misperceptions through a laboratory experiment. Our findings indicate that variations in the leverage ratio (the ratio of liabilities to assets) influence how individuals rank financial profiles, even when net wealth remains constant. Most subjects perceive a given net worth as greater than its true value, and this misperception becomes more pronounced in financial profiles with lower leverage ratios. We further explore how cognitive sophistication and behavioral/economic attitudes shape wealth misperception. Experimental evidence shows that misperception is associated with lower cognitive sophistication and inattentive thinking. Moreover, it correlates with greater impatience, lower debt aversion, and higher marginal propensities to consume following positive (transitory) income shocks.
Subjects: 
Perceived wealth
Cognitive sophistication
Laboratory experiment
Household debt
Consumption
JEL: 
C91
D91
G51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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