lottery winners and bankruptcy data

Wall Street Journal staffer Ben Leubsdorf reports on a Federal Reserve Bank of Philadelphia analysis that indicates an unusually noteworthy correlation between a big-time lottery win and an immediate spike in bankruptcies among the winner's neighbors.

Leubsdorf notes that economists assert that when a neighbor sees someone with a new fortune, they are pressured to possess more assets, such as cars and remodeling their home. Now, for every $1,000 increase in a lottery prize, there's a 2.4% increase in bankruptcy filings among a winner's neighbors.

“Income inequality induces poorer neighbors to consume more visible (rather than invisible) commodities to signal their abilities to ‘keep up with the Joneses’ to their richer neighbors,” economists Sumit Agarwal, Vyacheslav Mikhed and Barry Scholnick wrote. “This tendency can lead to additional and unsustainable borrowing among the relatively poor to finance this additional conspicuous consumption, which can eventually result in financial distress and bankruptcy.”

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