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The Leverage Self-Delusion: Perceived Wealth and Cognitive Sophistication

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  • Tiziana Assenza

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Alberto Cardaci

    (Goethe University Frankfurt = Goethe-Universität Frankfurt am Main)

  • D. Delli Gatti

    (Unicatt - Università cattolica del Sacro Cuore [Milano])

Abstract

Existing evidence suggests that individuals often misperceive the value of their wealth. We examine the existence, direction, and magnitude of these misperceptions through a laboratory experiment. Our findings indicate that variations in the leverage ratio (the ratio of liabilities to assets) influence how individuals rank financial profiles, even when net wealth remains constant. Most subjects perceive a given net worth as greater than its true value, and this misperception becomes more pronounced in financial profiles with lower leverage ratios. We further explore how cognitive sophistication and behavioral/economic attitudes shape wealth misperception. Experimental evidence shows that misperception is associated with lower cognitive sophistication and inattentive thinking. Moreover, it correlates with greater impatience, lower debt aversion, and higher marginal propensities to consume following positive (transitory) income shocks.

Suggested Citation

  • Tiziana Assenza & Alberto Cardaci & D. Delli Gatti, 2025. "The Leverage Self-Delusion: Perceived Wealth and Cognitive Sophistication," Post-Print hal-05300791, HAL.
    • Handle: RePEc:hal:journl:hal-05300791
    DOI: 10.1007/s11403-025-00453-3
    Note: View the original document on HAL open archive server: https://hal.science/hal-05300791v1
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