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