Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: Jul, 2024, Volume 15, Issue 3

Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality

https://doi.org/10.3982/QE2016
p. 699-736

Richard Foltyn, Jonna Olsson

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.


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Supplemental Material

Supplement to "Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality"

Richard Foltyn and Jonna Olsson

The replication package for this paper is available at https://doi.org/10.5281/zenodo.11092578. The Journal checked the data and codes included in the package for their ability to reproduce the results in the paper and approved online appendices.