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

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Author Info
Martin Salm (MEA, University of Mannheim)

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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.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2467.

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Length: 35 pages
Date of creation: Nov 2006
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Handle: RePEc:iza:izadps:dp2467

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Related research
Keywords: preferences; mortality expectations; saving decisions;

Other versions of this item:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped

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References listed on IDEAS
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