Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-being

TitleCognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-being
Publication TypeReport
Year of Publication2022
AuthorsAmeriks, J, Caplin, A, Lee, M, Shapiro, MD, Tonetti, C
Series TitleWorking Paper
Document Number29634
InstitutionNational Bureau of Economic Research
CityCambridge, MA
KeywordsCognitive decline, Financial well-being
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.

DOI10.3386/w29634
Citation Key12519