Joseph Briggs is an economist in the at the Federal Reserve Board of Governors. His research focuses on household financial decisions, lifecycle investing and portfolio choice, retirement saving, insurance holdings, and the long-term care insurance market. Prior to joining the Federal Reserve Board, Joseph finished a PhD in economics at New York University in 2016 and a bachelor’s degree in mathematics from North Carolina State University in 2010.
We estimate the causal effect of wealth on financial risk taking using a large sample of Swedish lottery players that were randomly assigned $500M. A $150,000 windfall gain increases stock ownership probability by 12 percentage points among pre-lottery nonparticipants and causes a significant decrease in the share of risky assets held by pre-lottery equity owners. These effects are immediate, heterogeneous, and persistent at long horizons. Furthermore, patterns in the data suggest limited roles for real estate, debt, loss aversion, and procrastination in explaining these patterns. Instead, households eschew equities for bonds, especially following periods of negative equity returns. Using a plausibly calibrated structural model, we find that accounting for the low entry of nonparticipants requires entry costs far higher than can plausibly be interpreted as financial costs, but that the negative effect on risky asset share is easily explained by the presence of future income.