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

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  • Salm, Martin

    (Tilburg University)

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.

Suggested Citation

  • Salm, Martin, 2006. "Can Subjective Mortality Expectations and Stated Preferences Explain Varying Consumption and Saving Behaviors among the Elderly?," IZA Discussion Papers 2467, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2467
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    Cited by:

    1. Stevens, Ralph & De Waegenaere, Anja & Melenberg, Bertrand, 2010. "Longevity risk in pension annuities with exchange options: The effect of product design," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 222-234, February.
    2. Warren C. Sanderson & Sergei Scherbov, 2007. "A Near Electoral Majority of Pensioners: Prospects and Policies," Population and Development Review, The Population Council, Inc., vol. 33(3), pages 543-554, September.
    3. Estrada-Mejia, Catalina & de Vries, Marieke & Zeelenberg, Marcel, 2016. "Numeracy and wealth," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 53-63.
    4. Hanna Solinge & Kène Henkens, 2018. "Subjective life expectancy and actual mortality: results of a 10-year panel study among older workers," European Journal of Ageing, Springer, vol. 15(2), pages 155-164, June.
    5. Thornton, Rebecca L., 2012. "HIV testing, subjective beliefs and economic behavior," Journal of Development Economics, Elsevier, vol. 99(2), pages 300-313.
    6. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers 188, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    mortality expectations; saving decisions; preferences;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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