I investigate a dynamic life-cycle strategic asset allocation and consumption problem under model uncertainty, where both inflation rate and income growth rate are assumed to be estimated with errors. I present a feasible boundary for the uncertainty aversion parameter, which measures the...

Hyperbolic discounting with naiveté is widely believed to provide a better explanation than exponential discounting of why people borrow so much and why they wait so long to save for retirement. We reach a different set of conclusions. We show that if financial planning is enriched to include...

In this paper we propose a new strategy for comparing the behavior of a hyperbolic discounter who possesses self-control problems to an exponential discounter who does not. Our strategy controls for inherent differences in overall levels of impatience across discount functions, which thereby...

We explicitly derive and explore the optimal consumption and portfolio policies of a loss- averse individual who endogenously updates his reference level over time. We find that he protects his current consumption by delaying painful reductions in consumption after a drop in wealth, and...

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out...

A large strand of research has identified when (i) a single risk is undesirable and (ii) two independent risks aggravate each other. We extend this line of inquiry by establishing when (iii) mutual aggravation is greater for greater risks. This natural property of \textit{greater mutual...

At the end of the deferment period a deferred annuity’s policyholder can choose between receiving annuity payouts or the capital accumulated. Considering stochastic mortality improvements, the lump-sum option could be of potential value for the policyholder. Whenever mortality improves less...

This paper evaluates approximation methods to make manageable the numerical solution of overlapping generation models with aggregate risk. The paper starts with a model in which households maximize expected utility over their life cycle. Instantaneous utility is characterized by constant...

We develop and study a neoclassical growth model with a realistic demographic structure. Our model complements recent developments in the overlapping generations (OLG) literature by highlighting the natural link that exists between different classes of macrodynamic models. Within the model we...

This paper reviews the literature on the optimal design and regulation of funded pension schemes. We first characterize optimal saving and investment over an individual’s life cycle. Within a stylized modeling framework, we explore optimal individual saving and investing behavior....