Genetic Ability, Wealth, and Financial Decision-Making

Daniel Barth, Nicholas Papageorge and Kevin Thom ()
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Kevin Thom: New York University

No 10567, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Recent advances in behavioral genetics have enabled the discovery of genetic scores linked to a variety of economic outcomes, including education. We build on this progress to demonstrate that the same genetic variants that predict educational attainment independently predict household wealth in the Health and Retirement Study (HRS). This relationship is partly explained by higher earnings, but a substantial portion of this association cannot be explained mechanically by income flows or bequests. This leads us to explore the role of beliefs, financial literacy and portfolio decisions in explaining this genetic gradient in wealth.We show that individuals with lower genetic scores are more prone to reporting "extreme beliefs" (e.g., reporting that there is a 100% chance of a stock market decline in the near future) and they invest their savings accordingly (e.g., avoiding the stock market). Our findings suggest that genetic factors that promote human capital accumulation contribute to wealth disparities not only through education and higher earnings, but also through their impact on the ability to process information and make good financial decisions. The association between genetic ability and wealth is substantially lower among households receiving a defined benefit pension. Policies that transfer greater responsibility to individuals to manage their wealth might therefore exacerbate the consequences of labor market inequality.

Keywords: education and genetics; beliefs; portfolio decisions; inequality; wealth (search for similar items in EconPapers)
JEL-codes: D14 D31 G11 H55 I24 J24 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2017-02
New Economics Papers: this item is included in nep-age and nep-lma
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Citations: View citations in EconPapers (3)

Published - published in: Journal of Political Economy, 2020, 128 (4),1474-1522

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