YOLO: Mortality Beliefs and Household Finance Puzzles

71 Pages Posted: 7 Oct 2015 Last revised: 13 Apr 2018

Rawley Heimer

Boston College - Department of Finance

Kristian Ove R. Myrseth

Trinity College Dublin

Raphael Schoenle

Brandeis University

Date Written: March 2018


Subjective mortality beliefs contribute to contradictory savings rate puzzles at opposite ends of the life-cycle – the young under-save, and retirees dis-save too slowly. We calibrate a canonical life-cycle model to new data from a large survey on subjective survival beliefs. Relative to a benchmark calibration using actuarial transition probabilities, the young under-save by 30%, and retirees draw down their assets 34% slower. The data supports the model’s predictions: distorted mortality beliefs correlate with savings behavior, even after controlling for risk preferences, cognitive, and socioeconomic factors. The salience of causes-of-death is a pivotal source of mortality belief distortions over the life-cycle.

Keywords: Subjective beliefs, Savings and consumption decisions, Life cycle model, Household finance, Discount factors, Salience

JEL Classification: D14, G02, G11

Suggested Citation

Heimer, Rawley and Myrseth, Kristian Ove R. and Schoenle, Raphael, YOLO: Mortality Beliefs and Household Finance Puzzles (March 2018). FRB of Cleveland Working Paper No. 15-21. Available at SSRN: https://ssrn.com/abstract=2669484 or http://dx.doi.org/10.2139/ssrn.2669484

Rawley Heimer

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Kristian Ove R. Myrseth (Contact Author)

Trinity College Dublin ( email )

2-3 College Green
Dublin, Leinster 2

HOME PAGE: http://https://www.tcd.ie/business/people/MYRSETHK/

Raphael Schoenle

Brandeis University ( email )

Waltham, MA 02454
United States

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