Choice (in)consistency and household wealth

Abstract

Abstract We examine the relationship between choice inconsistency and household wealth by combining experimental data with administrative records. In a representative Dutch sample, we reveal choice inconsistency through an experiment and quantify its severity using the Money Pump Index (MPI), which reflects potential monetary losses from inconsistent choices. Linking MPI to household wealth from Statistics Netherlands, we find a significant association: a one standard deviation increase in MPI corresponds to a 14.8% reduction in household wealth. This relationship holds after accounting for socioeconomic factors, cognitive ability, and risk attitudes, and its magnitude doubles when using self-reported wealth data.

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