Journal of Finance Vol. 74 No. 6 2019
YOLO: Mortality Beliefs and Household Finance Puzzles
Abstract
We study the effect of subjective mortality beliefs on life‐cycle behavior. With new survey evidence, we document that survival is underestimated (overestimated) by the young (old). We calibrate a canonical life‐cycle model to elicited beliefs. Relative to calibrations using actuarial probabilities, the young undersave by 26%, and retirees draw down their assets 27% slower, while the model's fit to consumption data improves by 88%. Cross‐sectional regressions support the model's predictions: Distorted mortality beliefs correlate with savings behavior while controlling for risk preferences, cognitive, and socioeconomic factors. Overweighting the likelihood of rare events contributes to mortality belief distortions.
- DOI
- 10.1111/jofi.12828
- Volume
- 74
- Issue
- 6
- Pages
- 2957-2996
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref