Heterogeneous expectations and the distribution of wealth

This study examines the extent to which heterogeneity of expectations affects wealth distribution, through the use of a standard heterogeneous agent model with uninsured idiosyncratic risk and aggregate uncertainty. A simple stylized model of heterogeneous expectations is considered to demonstrate that the impact of expectations’ heterogeneity on wealth inequality depends nonlinearly on the level and persistence of expectations’ dispersion. It is also shown that the heterogeneity of expectations generated by the empirically validated learning-from-experience model (Malmendier, Nagel, Q J Econ 2016) has a moderate but ambiguous impact on the distribution of wealth. The effect is sensitive to the calibration of the macroeconomic and learning parts of the model.