Financial decisions are heavily influenced by early experiences

According to The Economist

new research from Ulrike Malmendier of the University of California at Berkeley and Stefan Nagel of Stanford University seems to confirm that people born at different times make very different financial choices, even in similar economic environments.

Ms Malmendier and Mr Nagel examined detailed survey data about American households’ finances between 1964 and 2004. Because they knew when the people in the sample were born, they could calculate the average stockmarket returns and inflation that individuals had experienced over the course of their lives. And because the data tracked financial choices over time, they could also control for factors like age, which matters because the composition of people’s portfolios is likely to change as they grow older.

Their work confirmed the Depression babies idea. Under identical market conditions, and controlling for age, people who had experienced lower stockmarket returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better.

Comment: Another research result that confirms that we think with our evolved brains that are not nearly as precise logical engines as we imagine. JAD