Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103431
Authors: 
Groneck, Max
Ludwig, Alexander
Zimper, Alexander
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 73
Abstract: 
On average, "young" people underestimate whereas "old" people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is embedded within a non-expected utility model of life-cycle consumption and saving. Our analysis shows that agents with ambiguous survival beliefs (i) save less than originally planned, (ii) exhibit undersaving at younger ages, and (iii) hold larger amounts of assets in old age than their rational expectations counterparts who correctly assess their survival probabilities. Our ambiguity-driven model therefore simultaneously accounts for three important empirical findings on household saving behavior.
Subjects: 
Cumulative prospect theory
Choquet expected utility
Dynamic inconsistency
Life-cycle hypothesis
Saving puzzles
JEL: 
D91
D83
E21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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