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

  • Salm, Martin

    ()

    (Tilburg University)

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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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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  9. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  10. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  11. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
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  18. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the Rich Save More?," NBER Working Papers 7906, National Bureau of Economic Research, Inc.
  19. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
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