Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-Being

John Ameriks, Andrew Caplin, Minjoon Lee, Matthew Shapiro and Christopher Tonetti

American Economic Review: Insights, 2023, vol. 5, issue 1, 125-40

Abstract: Cognitive decline may lead older Americans to make poor financial decisions. Preventing poor decisions may require timely transfer of financial control to a reliable agent. Cognitive decline, however, can develop unnoticed, creating the possibility of suboptimal timing of the transfer of control. This paper presents survey-based evidence that older Americans with significant wealth regard suboptimal timing of the transfer of control, in particular delay due to unnoticed cognitive decline, as a substantial risk to financial well-being. This paper provides a theoretical framework to model such a lack of awareness and the resulting welfare loss.

JEL-codes: G51 G53 H55 J14 J26 J32 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-being (2022)
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DOI: 10.1257/aeri.20210711

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