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Self-esteem and Individual Wealth

  • Chatterjee, Swarn
  • Finke, Michael
  • Harness, Nathaniel

Self-esteem measures confidence in one’s abilities. Prior literature has shown that higher self-esteem can also affect individual financial decision making through an increased willingness to invest in risky assets and motivation to enhance self image through wealth accumulation. However, self-esteem can also lead to wealth-destroying investment behaviors due to overconfidence and an unwillingness to accept inevitable losses. Using the Rosenberg Self-esteem Scale included in the National Longitudinal Survey of Youth, we model wealth and portfolio allocation as a function of self-esteem, socioeconomic and demographic variables. Self-esteem is positively associated with an increase in net worth between 1994 and 2004, and with the proportion of a household portfolio held in investment assets. This study adds to the literature on psychological determinants of optimal household portfolio allocation by providing evidence that the positive effects of self-esteem outweigh the negative financial behaviors identified in prior literature.

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File URL: http://mpra.ub.uni-muenchen.de/20120/1/MPRA_paper_20120.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20120.

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Date of creation: 21 Mar 2008
Date of revision: 16 Aug 2008
Handle: RePEc:pra:mprapa:20120
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  1. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
  2. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-90, September.
  3. Alexis Yamokoski & Lisa Keister, 2006. "The Wealth Of Single Women: Marital Status And Parenthood In The Asset Accumulation Of Young Baby Boomers In The United States," Feminist Economics, Taylor & Francis Journals, vol. 12(1-2), pages 167-194.
  4. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
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  6. Selima Mansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a “Pessimisticâ€\x9D Bias in Individual Beliefs? Evidence from a Simple Survey," Theory and Decision, Springer, vol. 61(4), pages 345-362, December.
  7. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 261-292, February.
  8. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
  9. Lisa Keister, 2003. "Sharing the wealth: The effect of siblings on adults’ wealth ownership," Demography, Springer, vol. 40(3), pages 521-542, August.
  10. Donald R. Haurin & Patric H. Hendershott & Susan M. Wachter, 1996. "Borrowing Constraints and the Tenure Choice of Young Households," NBER Working Papers 5630, National Bureau of Economic Research, Inc.
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