Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality

93 Pages Posted: 2 Aug 2021 Last revised: 3 Mar 2023

See all articles by Richard Foltyn

Richard Foltyn

Norwegian School of Economics (NHH)

Jonna Olsson

Norwegian School of Economics (NHH)

Date Written: March 1, 2023

Abstract

This paper examines how objective and subjective heterogeneity in life expectancy affects savings behavior of healthy and unhealthy people. Using data from the Health and Retirement Study, we first document systematic biases in survival beliefs across self-reported health: those in poor health not only have a shorter actual lifespan but also underestimate their remaining life time. To gauge the effect on savings behavior and wealth accumulation, we use an overlapping-generations model where survival probabilities and beliefs evolve according to a health and survival process estimated from data. We conclude that differences in life expectancy are important to understand savings behavior, and that the belief biases, especially among the unhealthy, can explain up to a quarter of the observed health-wealth gap.

Keywords: Life expectancy, preference heterogeneity, subjective beliefs, life cycle

JEL Classification: D15, E21, G41, I14

Suggested Citation

Foltyn, Richard and Olsson, Jonna, Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality (March 1, 2023). Available at SSRN: https://ssrn.com/abstract=3895119 or http://dx.doi.org/10.2139/ssrn.3895119

Richard Foltyn (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Jonna Olsson

Norwegian School of Economics (NHH) ( email )

Helleveien 30
N-5035 Bergen
Norway

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
81
Abstract Views
539
Rank
514,724
PlumX Metrics