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1. Social Norms and Expectations about Student Loans and Family Formation

   https://doi.org/10.1111/soin.12416  

   Kuperberg, Arielle; Mazelis, Joan Maya (March 2021, Sociological Inquiry)

   Social norms and expectations regarding marriage or childbearing while in debt—or with an indebted partner—may explain links between student loans and lower family formation rates. This study analyzes an original survey of college students (N = 2,990) at two universities examining how student loanswill,would,orshouldaffect romantic relationship and family formation decisions. A significant minority believed marriage should be delayed and nearly half believed childbearing should be delayed when people have student loan debt. Many reported they would hesitate to marry someone with high student debt, their loans would delay family formation, and they would form families earlier if their debt were forgiven. Those with loan debt and higher debt were more willing to partner with those who had high student debt. Women were less likely to believe peopleshoulddelay childbearing and marriage because of loans, but more hesitant to marry a partner with high student debt. Findings suggest social norms underlie childbearing and marriage delays among those with loans, and student loan debt creates a class divide among the highly educated. 

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2. Wealth Inequality in a Low Rate Environment

   Gomez, Matthieu; Gouin-Bonenfant, Emilien (January 2024, Econometrica)

   Imbens, Guido W (Ed.)

   We study the effect of interest rates on wealth inequality. While lower rates decrease the growth rate of rentiers, they also increase the growth rate of entrepreneurs by making it cheaper to raise capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the lifetime equity and debt issuance rate of individuals in the right tail of the wealth distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. Overall, we find that the secular decline in interest rates (or more generally of required rates of returns) can account for about 40% of the rise in Pareto inequality; that is, the degree to which the super rich pulled ahead relative to the rich. 

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3. The persistence of cognitive biases in financial decisions across economic groups

   https://doi.org/10.1038/s41598-023-36339-2  

   Ruggeri, Kai; Ashcroft-Jones, Sarah; Abate_Romero_Landini, Giampaolo; Al-Zahli, Narjes; Alexander, Natalia; Andersen, Mathias Houe; Bibilouri, Katherine; Busch, Katharina; Cafarelli, Valentina; Chen, Jennifer; et al (June 2023, Scientific Reports)

   While economic inequality continues to rise within countries, efforts to address it have been largely ineffective, particularly those involving behavioral approaches. It is often implied but not tested that choice patterns among low-income individuals may be a factor impeding behavioral interventions aimed at improving upward economic mobility. To test this, we assessed rates of ten cognitive biases across nearly 5000 participants from 27 countries. Our analyses were primarily focused on 1458 individuals that were either low-income adults or individuals who grew up in disadvantaged households but had above-average financial well-being as adults, known as positive deviants. Using discrete and complex models, we find evidence of no differences within or between groups or countries. We therefore conclude that choices impeded by cognitive biases alone cannot explain why some individuals do not experience upward economic mobility. Policies must combine both behavioral and structural interventions to improve financial well-being across populations. 

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4. Income Growth and the Distributional Effects of Urban Spatial Sorting

   https://doi.org/10.1093/restud/rdad048  

   Couture, Victor; Gaubert, Cecile; Handbury, Jessie; Hurst, Erik (April 2023, Review of Economic Studies)

   Abstract We explore the impact of rising incomes at the top of the distribution on spatial sorting patterns within large U.S. cities. We develop and quantify a spatial model of a city with heterogeneous agents and non-homothetic preferences for neighbourhoods with endogenous amenity quality. As the rich get richer, demand increases for the high-quality amenities available in downtown neighbourhoods. Rising demand drives up house prices and spurs the development of higher quality neighbourhoods downtown. This gentrification of downtowns makes poor incumbents worse off, as they are either displaced to the suburbs or pay higher rents for amenities that they do not value as much. We quantify the corresponding impact on well-being inequality. Through the lens of the quantified model, the change in the income distribution between 1990 and 2014 led to neighbourhood change and spatial resorting within urban areas that increased the welfare of richer households relative to that of poorer households, above and beyond rising nominal income inequality. 

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5. Cognitive Barriers to Reducing Income Inequality

   https://doi.org/10.1177/1948550620934597  

   Jackson, Joshua Conrad; Payne, Keith (July 2021, Social Psychological and Personality Science)

   null (Ed.)

   As economic inequality grows, more people stand to benefit from wealth redistribution. Yet in many countries, increasing inequality has not produced growing support for redistribution, and people often appear to vote against their economic interest. Here we suggest that two cognitive tendencies contribute to these paradoxical voting patterns. First, people gauge their income through social comparison, and those comparisons are usually made to similar others. Second, people are insensitive to large numbers, which leads them to underestimate the gap between themselves and the very wealthy. These two tendencies can help explain why subjective income is normally distributed (therefore most people think they are middle class) and partly explain why many people who would benefit from redistribution oppose it. We support our model’s assumptions using survey data, a controlled experiment, and agent-based modeling. Our model sheds light on the cognitive barriers to reducing inequality. 

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