Wealth Preferences and Wealth Inequality: Experimental Evidence

Some researchers claim that a preference for wealth accumulation is the main cause of the long-run stagnation of the Japanese economy. A theoretical implication of people having such a preference, particularly the assumption that the marginal utility of wealth accumulation has a positive lower bound while that of consumption does not, is a widening of wealth inequality. We experimentally test this theoretical prediction by inducing a wealth preference in the laboratory. We find partial support for this prediction: wealth inequality widens when initial inequality is large, but not when it is small. This is because high-wealth participants tend to overconsume more than lower-wealth participants, partly offsetting the effect of the induced preference for wealth accumulation on the widening of wealth inequality. Activating participants’ status concerns by displaying their ranking in accumulated wealth has only a limited impact on the expansion of wealth inequality.