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Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality

Author

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  • Foltyn, Richard
  • Olsson, Jonna
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.

Suggested Citation

  • Foltyn, Richard & Olsson, Jonna, 2024. "Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality," EconStor Preprints 294009, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:294009
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    References listed on IDEAS

    as
    1. Nils Grevenbrock & Max Groneck & Alexander Ludwig & Alexander Zimper, 2021. "Cognition, Optimism, And The Formation Of Age‐Dependent Survival Beliefs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 887-918, May.
    2. William G. Gale & John Karl Scholz, 1994. "Intergenerational Transfers and the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 145-160, Fall.
    3. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    4. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez, 2014. "Where is the land of Opportunity? The Geography of Intergenerational Mobility in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1553-1623.
    5. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(3), pages 743-768.
    6. Mariacristina De Nardi & Svetlana Pashchenko & Ponpoje Porapakkarm, 2017. "The Lifetime Costs of Bad Health," Working Papers 2017-079, Human Capital and Economic Opportunity Working Group.
    7. Richard Foltyn & Jonna Olsson, 2021. "Health Dynamics and Heterogeneous Life Expectancies," Working Papers 2021_17, Business School - Economics, University of Glasgow.
    8. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    life expectancy; preference heterogeneity; subjective beliefs; life cycle;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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