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Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making

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  • Mazzonna, Fabrizio

    (USI Università della Svizzera Italiana)

  • Peracchi, Franco

    (University of Rome Tor Vergata)

Abstract

We investigate whether older people correctly perceive their own cognitive decline, and the potential financial consequences of misperception. First, we document the fact that older people tend to underestimate their cognitive decline. We then show that those who experienced a severe cognitive decline, but are unaware of it, are more likely to suffer wealth losses compared to those who are aware or did not experience a severe decline. These losses largely reflect decreases in financial wealth and are mainly experienced by wealthier people who were previously active on the stock market. Our findings support the view that financial losses among older people unaware of their cognitive decline are the result of bad financial decisions, not of rational disinvestment strategies.

Suggested Citation

  • Mazzonna, Fabrizio & Peracchi, Franco, 2020. "Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making," IZA Discussion Papers 13725, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13725
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    More about this item

    Keywords

    aging; cognitive ability; household finance; HRS;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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