72 Pages Posted: 7 Oct 2015 Last revised: 20 Jan 2017
Date Written: January 19, 2017
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 15% more slowly. The data supports the model’s predictions: Distorted mortality beliefs correlate with savings behavior, even controlling for risk preferences, and 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: Suggested Citation
Heimer, Rawley and Myrseth, Kristian Ove R. and Schoenle, Raphael, YOLO: Mortality Beliefs and Household Finance Puzzles (January 19, 2017). 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