The Subjective Wealth Distribution: How it Arises and Why it Matters to Inform Policy?

We estimate the relationship between people’s biased perceptions of their rank in the wealth distribution and savings behavior. Using unique wealth survey data from Austria, we uncover a significant bias in self-assessed distributional ranks. Our estimates indicate that individuals who underestimate their wealth rank have a savings rate approximately 50% higher than those who assess their rank accurately. Preferences that feature relative wealth in the utility function can explain this relationship. Our findings inform contemporary macroeconomic models and contribute to understanding the impact of information bubbles on economic decisions.

Link: The Subjective Wealth Distribution: How it Arises and Why it Matters to Inform Policy?