Dispositional optimism (and pessimism) and saving decisions

Abstract

In this paper I analyze the relationship between dispositional optimism (pessimism) and saving decisions. The key contribution of this paper is the use of direct psychometric measures of psychological dispositions as available in the Health and Retirement Study (HRS). Previous studies use the difference between subjective survival beliefs and objective survival probabilities as a proxy for these psychological dispositions. I argue that the proxy is not a satisfactory measure of dispositional optimism ̶ in particular for the older population. Additionally, the psychometric measures allow me to control for optimism and pessimism separately. The psychometric measure of dispositional pessimism is shown to be significantly related to wealth holdings and stock market participation ̶ optimism is not significantly related. A one standard deviation decrease in pessimism is associated with holding 71 US-$ more overall wealth and an increase in the likelihood of holding stocks of 2.5%.