American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-Being
American Economic Review: Insights
vol. 5,
no. 1, March 2023
(pp. 125–40)
Abstract
Cognitive decline may lead older Americans to make poor financial decisions. Preventing poor decisions may require timely transfer of financial control to a reliable agent. Cognitive decline, however, can develop unnoticed, creating the possibility of suboptimal timing of the transfer of control. This paper presents survey-based evidence that older Americans with significant wealth regard suboptimal timing of the transfer of control, in particular delay due to unnoticed cognitive decline, as a substantial risk to financial well-being. This paper provides a theoretical framework to model such a lack of awareness and the resulting welfare loss.Citation
Ameriks, John, Andrew Caplin, Minjoon Lee, Matthew D. Shapiro, and Christopher Tonetti. 2023. "Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-Being." American Economic Review: Insights, 5 (1): 125–40. DOI: 10.1257/aeri.20210711Additional Materials
JEL Classification
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- G53 Household Finance: Financial Literacy
- H55 Social Security and Public Pensions
- J14 Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
- J26 Retirement; Retirement Policies
- J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions