Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality

Richard Foltyn and Jonna Olsson

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

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 fifth of the observed health-wealth gap.

Keywords: life expectancy; preference heterogeneity; subjective beliefs; life cycle (search for similar items in EconPapers)
JEL-codes: D15 E21 G41 I14 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-hea
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Related works:
Journal Article: Subjective life expectancies, time preference heterogeneity, and wealth inequality (2024)
Working Paper: Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:294009

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