Can Subjective Mortality Expectations and Stated Preferences Explain Varying Consumption and Saving Behaviors Among the Elderly?

35 Pages Posted: 5 Dec 2006

See all articles by Martin Salm

Martin Salm

Tilburg University; IZA Institute of Labor Economics

Date Written: November 2006

Abstract

This study investigates how subjective mortality expectations and heterogeneity in time and risk preferences affect the consumption and saving behavior of the elderly. Previous studies find that the large wealth disparities observed among the elderly cannot be explained by differences in preferences. In contrast, this study identifies a strong relationship between answers to survey questions about time and risk preferences and consumption and saving behaviors. This paper uses data on information about preferences and subjective mortality expectations from the Health and Retirement Study merged with detailed consumption data from two waves of the Consumption and Activities Mail Survey. The main results are: 1) consumption and saving choices vary with subjective mortality rates in a way that is consistent with the life cycle model; 2) different answers to survey questions about time and risk preferences reflect differences in actual saving and consumption behavior; and 3) there is substantial heterogeneity in estimated time discount rates and risk aversion parameters.

Keywords: preferences, mortality expectations, saving decisions

JEL Classification: D81, D91, J14

Suggested Citation

Salm, Martin, Can Subjective Mortality Expectations and Stated Preferences Explain Varying Consumption and Saving Behaviors Among the Elderly? (November 2006). IZA Discussion Paper No. 2467, Available at SSRN: https://ssrn.com/abstract=949192 or http://dx.doi.org/10.2139/ssrn.949192

Martin Salm (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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