Longevity and Financial Risk-Taking

Our willingness to take risks shapes our decisions and behaviour in almost every domain of our lives. Financial risk tolerance underlies several household finance decisions, ranging from asset allocation choices to insurance holding. Literature provides evidence on heterogeneity among people's risk attitudes. For instance, it is well-established that biological, socioeconomic and environmental variables affect financial risk tolerance. Moreover, recent studies
investigate the effect of individuals’ subjective estimation of their life horizon on financial risk-taking.
Our research framework is distinctive with respect to the existing literature, as it combines actuarial and behavioural perspectives to assess the impact of longevity mis-perception on financial risk-taking. Indeed, subjective survival beliefs can be biased, i.e. they can reveal an incorrect assessment of longevity risk. We use data from the "Survey of Health, Ageing and Retirement in Europe" (SHARE) and determine a reliable measure of the "survival gap", i.e.
the difference between subjective survival probabilities and their actuarial counterparts (built to reflect also respondents’ health status). Among the other findings, we show that individuals
who are able to express a more precise estimation of their survival prospects are more likely to tolerate any financial risks, compared to all the other respondents.