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YOLO: Mortality Beliefs and Household Finance Puzzles

Year: 2015

Type: article

Abstract: ABSTRACT We study the effect of subjective mortality beliefs on life‐cycle behavior. With new survey evidence, we document that survival is underestimated (overestimated) by the young (old). We calibrate a canonical life‐cycle model to elicited beliefs. Relative to calibrations using actuarial probabilities, the young undersave by 26%, and retirees draw down their assets 27% slower, while the model's fit to consumption data improves by 88%. Cross‐sectional regressions support the model's predictions: Distorted mortality beliefs correlate with savings behavior while controlling for risk preferences, cognitive, and socioeconomic factors. Overweighting the likelihood of rare events contributes to mortality belief distortions.

Source: The Journal of Finance

DOI: 10.1111/jofi.12828

Authors: RAWLEY Z. HEIMER, KRISTIAN OVE R. MYRSETH, RAPHAEL S. SCHOENLE

Institutions: Boston College, Trinity College Dublin, Brandeis University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121663584

FWCI: 10.31

Cites: 72

Cited by: 54

Related to: 10