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Ambiguity Aversion, Portfolio Choice, and Life Expectancy

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  • Alistair Macaulay
  • Chenchuan Shi

Abstract

This paper studies how wealth and aging affect portfolio choices in a life‐cycle model with ambiguity aversion. Ambiguity aversion implies wealthier and older agents are endogenously more optimistic about risky asset returns, relative to poorer/younger agents. As life expectancy grows, old agents become even more optimistic, while young agents become more pessimistic, amplifying age gaps in portfolio composition. We find evidence for the mechanism in survey data on portfolios and subjective life expectancy. In a quantitative extension of the model, plausible life expectancy projections imply a 26% increase in the age gradient of conditional risky asset shares between 2019 and 2100.

Suggested Citation

  • Alistair Macaulay & Chenchuan Shi, 2026. "Ambiguity Aversion, Portfolio Choice, and Life Expectancy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 67(2), pages 633-655, May.
    • Handle: RePEc:wly:iecrev:v:67:y:2026:i:2:p:633-655
    DOI: 10.1111/iere.70039
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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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