Lower Average Investment Returns for the Less Wealthy Due to Risk Aversion
Due to a higher degree of risk aversion, individuals with limited wealth tend to make investment choices that, over many decisions and across a population, result in a lower average rate of profit compared to the returns achieved by wealthier individuals. This shortfall in average returns is a key mechanism through which wealth inequality is perpetuated, as the less wealthy consistently miss out on the higher average returns from riskier assets.
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