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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.

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Bibliographic 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
Date of revision:
Handle: RePEc:iza:izadps:dp2467

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Keywords: mortality expectations; saving decisions; preferences;

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Cited by:
  1. Thornton, Rebecca L., 2012. "HIV testing, subjective beliefs and economic behavior," Journal of Development Economics, Elsevier, Elsevier, vol. 99(2), pages 300-313.
  2. 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.
  3. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers, Netherlands Central Bank, Research Department 188, Netherlands Central Bank, Research Department.

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