YOLO: Mortality Beliefs and Household Finance Puzzles

Rawley Heimer

Federal Reserve Bank of Cleveland

Kristian Ove R. Myrseth

Trinity College Dublin

Raphael Schoenle

Brandeis University

January 19, 2017

FRB of Cleveland Working Paper No. 15-21

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.

Number of Pages in PDF File: 72

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

JEL Classification: D14, G02, G11

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Date posted: October 7, 2015 ; Last revised: January 20, 2017

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

Contact Information

Rawley Heimer
Federal Reserve Bank of Cleveland ( email )
Mailstop 32
Waltham, MA 02454-9110
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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