Study: Well-To-Do Are More Superior Investors

Stony Brook University finance professor Noah Smith writes for BloombergView that recent research suggest “the rich [may] get richer because they know how to invest their money more effectively.” Citing research by Marcin Kacperczk, Jaromir Nsal, and Luminita Stevens, he notes that differing levels of financial sophistication, the increased availability of financial data (for a price) since the information technology revolution, and better ability of the wealthy to acquire valuable assets may all play a role. Further, in various ways, Smith notes, “initial differences in wealth will compound over time, with the rich getting richer faster.” Smith cites economist Thomas Piketty’s dystopian vision in which “the rich keep getting richer as their capital turns itself into more capital” and suggest that a similar information-based dynamic may also be at work – “the more you know, the better you understand how to learn more.” The options for preventing a dystopian “world where initial differences compound themselves,” Smith observes, all “involve heavy government distortions of the economy” and, therefore, are likely to be unpopular among economists and the populace alike.