Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision-Making

Fabrizio Mazzonna and Franco Peracchi

Journal of Political Economy, 2024, vol. 132, issue 6, 1793 - 1830

Abstract: We investigate whether older people correctly perceive their cognitive decline and the potential financial consequences of misperception. First, we show that older people tend to underestimate their cognitive decline. We then show that those experiencing a severe decline but unaware of it are more likely to suffer wealth losses. These losses largely reflect decreases in financial wealth and are mainly experienced by wealthier people who were previously active on the stock market. Our findings support the view that financial losses among older people unaware of their cognitive decline are the result of bad financial decisions, not of rational disinvestment strategies.

Date: 2024
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Working Paper: Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making (2020)
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