Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/294009 
Year of Publication: 
2024
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
This paper examines how objective and subjective heterogeneity in life expectancy affects savings behavior of healthy and unhealthy people. Using data from the Health and Retirement Study, we first document systematic biases in survival beliefs across self-reported health: those in poor health not only have a shorter actual lifespan but also underestimate their remaining life time. To gauge the effect on savings behavior and wealth accumulation, we use an overlapping-generations model where survival probabilities and beliefs evolve according to a health and survival process estimated from data. We conclude that differences in life expectancy are important to understand savings behavior, and that the belief biases, especially among the unhealthy, can explain up to a fifth of the observed health-wealth gap.
Subjects: 
life expectancy
preference heterogeneity
subjective beliefs
life cycle
JEL: 
D15
E21
G41
I14
Document Type: 
Working Paper

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