Working Paper: NBER ID: w29634
Authors: John Ameriks; Andrew Caplin; Minjoon Lee; Matthew D. Shapiro; Christopher Tonetti
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 wealthholders 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.
Keywords: Cognitive Decline; Financial Wellbeing; Aging; Decision-Making
JEL Codes: D14; E21; G51; G53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cognitive decline (D91) | poor financial decisions (D14) |
| cognitive decline (D91) | timing of control transfer (E61) |
| lack of awareness (D83) | timing of control transfer (E61) |
| timing of control transfer (E61) | perceived financial wellbeing (G53) |
| cognitive awareness (D91) | timing of control transfer (E61) |