Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-being
Matthew D. Shapiro
- American Economic Review: Insights (Forthcoming)
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.
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