Risk Attitudes, Patience, and the Concentration of Wealth at the Top

jun. 16, 2025

Why some people build wealth—and others don’t—comes down to how they think about risk, saving, and investing, new ongoing research shows.

Why do some people build up much more wealth than others? A new study suggests it’s not just luck. It’s about how people think and behave when it comes to investing.

In a recent paper, Swedish House of Finance researchers Gualtiero Azzalini (SSE) and Zoltán Rácz (SSE), together with University of St. Gallen’s Markus Kondziella, argue that wealth inequality can be explained in part by personal traits: some people are more comfortable taking risks, more patient about saving for the future, and more willing to put their money in less diversified investments.

Simulating How People Build Wealth

To explore this, the authors built a computer simulation of an economy where individuals work, earn income, decide how much to save, and choose between safe and risky assets. The model also includes the ups and downs of the job market, especially how income becomes less stable during recessions.

The researchers divide people into two types and make sure that the simulation matches real-world portfolio choice patterns. As an outcome of this approach, about 90% of the population consists of Type-one individuals, who are more cautious and impatient, and prefer to avoid risk and spread their money across many types of assets. Type-two individuals, just 10% of the population, are more comfortable with risk, willing to wait longer for rewards, and less diversified. The model simulation showed that people of the latter type ended up much wealthier over time, holding more than half of the total wealth in the economy.

The Wealthy Don’t Just Have More—They Invest Differently

Wealthy individuals in the model behave differently: they invest more in stocks and other risky assets, take on more concentrated bets (like owning a business), and earn higher returns (explore charts showing personal risk and stock market participation here). These decisions compound over time, helping them rise to the top of the wealth distribution, the study shows. 

“The compositional effect resulting from the rising fraction of these individuals as a function of wealth thus delivers the increasing relationship between wealth and the risky share even for the highest quantiles of the distribution,” the authors write.

Meanwhile, the more cautious majority saves less, avoids risk, and tends to stay in the middle or lower parts of the wealth distribution. Besides explaining portfolio choice differences between the poor and the rich, this effect generates a highly unequal distribution of wealth and wealth mobility patterns in line with Swedish administrative data.

What Happens If Everyone Acts the Same?

To test their ideas, the authors created alternate versions of the model where everyone had the same preferences or faced the same risks. These simplified versions couldn’t match the actual patterns of wealth and investment seen in the data.

“In all cases, either the match of the portfolio schedules, wealth inequality or mobility is worsened,” the authors write.

The implication is clear: both people's financial attitudes and the risks they face matter. Without these differences, the model cannot explain why the wealthy invest—and succeed—the way they do.

After a Shock, the Rich Pull Further Ahead

Finally, the authors tested what happens when the economy gets a sudden boost, like a stock market boom. The results showed that wealthy individuals benefit most, since they hold more risky assets and are more likely to reinvest their gains.

“The additional capital gains boost inequality, as agents in the right tail of the distribution have a larger share of their wealth invested in the risky asset,” the authors say.

In alternative versions of the model where everyone had the same preferences or faced the same risks, the stock market boom even reduced inequality as in these specifications the richest counterfactually invested less in stocks. 

Lessons for Policy

The study highlights the importance of accounting for portfolio choices over the wealth distribution when studying topics related to capital income and inequality, the authors say. For the same reason, the framework developed in the paper is a promising starting point to investigate many policy relevant questions, such as the distributional effects of capital income and wealth taxation.