A practical method of determining longevity and premature-death risk aversion in households and some proposals of its application

Abstract

This article presents a concept on how to infer some information on household preference structure from expected trajectory of cumulated net cash flow process that is indicated by the household members as the most acceptable variant. Under some assumptions, financial planning style implies cumulated surplus dynamics. The reasoning may be inverted to identify financial planning style. To illustrate the concept, there is proposed a sketch of household financial planning model taking into account longevity and premature-death risk aversion, as well as bequest motive. Then, a scheme of a procedure to identify and quantify preferences is presented. The results may be used in life-long financial planning suited to the preference structure.