Twin Picks

What is it about?

This paper uses a twin panel to analyze the socioeconomic variables driving the financial decisions of individual investors. We show that the fraction of financial wealth invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Future wages, which we estimate directly from individual labor income, also affects risk-taking positively, while consumption habit and expenditure commitments tend to reduce it.

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Why is it important?

Because individual investors are all different, it is challenging to sort out the investment impact of individual financial circumstances from the investment impact of preferences, genes, and family background. We control for genetic and family effects by comparing the decisions of twins. We can then identify the individual economic variables that drive investment decisions.