YOLO: Mortality Beliefs and Household Finance Puzzles

Raphael Schoenle, Kristian Ove Myrseth and Rawley Heimer
Additional contact information
Kristian Ove Myrseth: University of St. Andrews
Rawley Heimer: Federal Reserve Bank of Cleveland

No 661, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Subjective mortality beliefs affect pre- and post-retirement consumption and savings decisions, as well as portfolio allocation. Our new survey evidence shows that younger individuals overestimate their mortality at short horizons while older individuals over-estimate their long-run chances of survival. The formation of these beliefs across age cohorts can be attributed to overweighting the most salient causes-of-death, which change over the life-cycle. This bias matters empirically: Survival expectations correlate with heterogeneity in ï¬ nancial education and investment behavior. These beliefs make the young (old) more impatient (patient), and when embedded in a conventional dynamic life-cycle model with pre-cautionary savings, they cause the young to under-save (they have 10% less saved upon retirement) and retirees to not fully draw down their assets (they consume 12% less during retirement). In addition, we propose a few mechanisms through which mortality beliefs could affect the equity premium, particularly through a reduction in the risk free rate.

Date: 2016
New Economics Papers: this item is included in nep-age and nep-hea
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Related works:
Journal Article: YOLO: Mortality Beliefs and Household Finance Puzzles (2019)
Working Paper: YOLO: Mortality Beliefs and Household Finance Puzzles (2015)
Working Paper: YOLO: Mortality Beliefs and Household Finance Puzzles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:661

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