Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making

We investigate whether older people correctly perceive their own cognitive decline, and
the potential financial consequences of misperception. First, we document the fact that
older people tend to underestimate their cognitive decline. We then show that those who
experienced a severe cognitive decline, but are unaware of it, are more likely to suffer
wealth losses compared to those who are aware or did not experience a severe decline.
These losses largely reflect decreases in financial wealth and are mainly experienced by
wealthier people who were previously active on the stock market. Our findings support the
view that financial losses among older people unaware of their cognitive decline are the
result of bad financial decisions, not of rational disinvestment strategies.