News

Being poor may also have positive effects on economic decisions

The experience of having insufficient economic resources may affect the grounds on which decisions are made.
The dissertation also studies differences in subjective well-being between shareholders and non-shareholders. According to Luotonen, shareholders are happier than non-shareholders. Photo: Anni Hanén

‘One established view is that continuing economic hardship may extensively shift our attention to, e.g., payments due, so that we do not concentrate enough on the other decisions we should make,’ says Niilo Luotonen. He will defend his doctoral dissertation at the Aalto University School of Business on Friday, 4 November. Luotonen studied the impact of poverty on decisions made by 350 vendors of the Iso Numero street paper, monitoring them for 14 months. 

Luotonen shows in his study that the number of magazines vendors buy follows the demand they expect, particularly after a pricing shock that makes resources scarcer throughout the sample. Additionally, vendors speed up the average turnover of their inventories due to the shock. Diminishing resources therefore seem to result in more careful economic decisions, not worse ones.

Expecting an inadequate pension may cause different reactions in different social classes

In his doctoral dissertation, Niilo Luotonen also looked at confidence in the pension system and its effect on decisions made about saving and investing.

According to Luotonen, expected pension benefits may cause people to save less because they diminish the perceived need to save. With risky assets, such as shares, the logic may be the opposite: the insurance provided by the expected pension may enhance the willingness to take risk with private savings.

Luotonen used survey data on 5,500 individuals, provided by TNS Gallup, to examine how confidence in the sufficiency of pensions is visible in decisions to save and invest.

‘Doubts about the sufficiency of pensions increase the probability of investing in shares only among wealthy, financially literate men. Those who are likely to have a poorer understanding of financial matters regard risky investments and pension security as complementary, and only invest when they trust the system. These types of behavioural differences, related to societal status, should be considered in pension system design,’ says Luotonen.

Shareholders are happy with their lives

The dissertation also studies differences in subjective well-being between shareholders and non-shareholders. This is a novel approach to the economics of happiness literature, which studies the relationship between financial affluence and life satisfaction.

According to Luotonen, shareholders are happier than people who share the same level of wealth and demographic features, but do not own shares. Additionally, over the years, people who buy shares grow more satisfied than people who do not own shares.

‘Two alternative, not mutually exclusive, explanations for the results are discussed. First, shareholders may derive pleasure from discussing their investments and their development with other shareholders. Second, long-term investments in shares typically involve planning for the future, which may enhance general satisfaction with life through an increased feeling of control’, says Luotonen. The data used in the research comprises 19 European countries and more than 100,000 households.

  • Published:
  • Updated:
Share
URL copied!

Related news

KTT Sami Itani
Research & Art Published:

Doctor’s career path: CEO Sami Itani’s story

‘Doctoral studies consist of team-based project work in which you can act as your own project manager.’
kaksi naista istuu punaisilla tuoleilla studiossa keskustelemassa, taustalla musta verho ja keltainen lattia
Research & Art, Studies Published:

What can we learn from the pandemic?

Aalto University's studio discussion focused on what the COVID-19 pandemic has taught us about the importance of the environment for health and wellbeing.
Assistant Professor Peter Nyberg, McKinsey Teacher of the Year 2020.
Honoured, Research & Art Published:

Aalto BIZ Teacher of the Year 2020

Finance Assistant Professor Peter Nyberg has been nominated as the Aalto BIZ Teacher of the Year 2020.
Machine Learning Coffee Seminar logo in purple and white colours
Research & Art Published:

Machine Learning Coffee Seminars continue with a great lineup of speakers

MLCS gathers together people from different fields of science who have at least one thing in common, interest in machine learning