Socioeconomic Status and Learning from Financial Information

We investigate the role of socioeconomic status (SES) on people’s ability to learn from information in financial markets. In an experimental setting we find that low SES participants, relative to medium or high SES ones, form more pessimistic beliefs about the distribution of outcomes of financial investments when, objectively, these investments are likely to be good. This pessimism bias regarding risky investments that is induced by coming from a low SES environment is particularly strong if participants are actively investing, rather than passively learning, and if financial losses are possible. These results suggest that SES shapes in predictable ways people’s perception of financial news, which in turn may help explain differences in households’ propensity to participate in financial markets. We thank seminar participants at the University of North Carolina, Duke University, New York University, and participants at the 2014 meeting of the Society for Neuroeconomics for helpful comments and discussion. Andreea Beciu provided excellent research assistance. All remaining errors are ours. University of North Carolina, Kenan-Flagler Business School, Finance Area, 300 Kenan Center Drive, MC #4407, Chapel Hill, NC 27599, USA. E-mail: camelia [email protected]. (Corresponding author) Babes-Bolyai University, Department of Psychology, Republicii St. #37, Cluj-Napoca 400015, Romania. E-mail: [email protected].