Empirical Studies of household portfolios have shown that young and relatively poor households hold under-diversified portfolios that are concentrated in a small number of assets, a fact often attributed to various behavioral biases. We present a model in which relatively poor investors, i.e.,...

We examine the optimal consumption/saving and portfolio allocation responses of rational households subject to an exogenous change in the terms of the Social Security contract. Our analysis uses key features of the actual contract, an exogenous labor income process calibrated to IRS...