Quantitative Economics
Journal Of The Econometric Society
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Quantitative Economics: Jul, 2024, Volume 15, Issue 3
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.
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.