Ambiguity Aversion, Portfolio Choice, and Life Expectancy

Alistair Macaulay and Chenchuan Shi

International Economic Review, 2026, vol. 67, issue 2, 633-655

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.

Date: 2026
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https://doi.org/10.1111/iere.70039

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Working Paper: Ambiguity Aversion, Portfolio Choice, and Life Expectancy (2025)
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