YOLO: Mortality Beliefs and Household Finance Puzzles

Rawley Z. Heimer, Kristian Ove R. Myrseth and Raphael Schoenle

Journal of Finance, 2019, vol. 74, issue 6, 2957-2996

Abstract: We study the effect of subjective mortality beliefs on life‐cycle behavior. With new survey evidence, we document that survival is underestimated (overestimated) by the young (old). We calibrate a canonical life‐cycle model to elicited beliefs. Relative to calibrations using actuarial probabilities, the young undersave by 26%, and retirees draw down their assets 27% slower, while the model's fit to consumption data improves by 88%. Cross‐sectional regressions support the model's predictions: Distorted mortality beliefs correlate with savings behavior while controlling for risk preferences, cognitive, and socioeconomic factors. Overweighting the likelihood of rare events contributes to mortality belief distortions.

Date: 2019
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Citations: View citations in EconPapers (62)

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https://doi.org/10.1111/jofi.12828

Related works:
Working Paper: YOLO: Mortality Beliefs and Household Finance Puzzles (2016)
Working Paper: YOLO: Mortality Beliefs and Household Finance Puzzles (2015)
Working Paper: YOLO: Mortality Beliefs and Household Finance Puzzles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:74:y:2019:i:6:p:2957-2996

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