Nova workboard

a blog from young economists at Nova SBE

Immortality: how can it change our decision-making

 

            Calico, a new venture launched by the American search giant Google to extend the human life span has revived the old topic of searching for immortality. For some experts it is already not a matter of being possible or not, but when it is going to happen. To keep things a little bit simpler, let’s assume no immortality, but such a large life span that it’s hard to imagine. What can the cure for aging bring to our lives and to our economies?

From a macroeconomic perspective, there will be large gains in product from having more people working longer, from reducing the heath care expenditure, etc. Although, it is clear that, solving this death issue we are just opening doors to create several other bigger problems, such as overpopulation, scarcity, the disruption of pensions systems, cultural stagnation, among many others.

                  For microeconomists the issue raises some other problems essentially at consumer’s decision-making and in their risk aversion levels.

In one hand, in a scenario with high life expectancy, as people see their retirement age still too far away, they might postpone their savings and plans, and consume more in the present time. Other fact is that with so many years to work should be trivial to get together a retirement fund even without a great propensity to save, as with compounding interest a small amount over many years can sum a great amount of money. This also might give an incentive to reduce the agents’ working years and cause more problems to the economy as the workforce loses strength. Like the other facts mentioned above, the fact that you might have a lot of time ahead on your life to cover great investment losses and loans, might reduce savings and risk aversion as well.

On the other hand, as society gets older, the risk aversion tends to increase, as older people are more averse to risk, due to maturity, having children, etc.

According to permanent income and life cycle hypothesis, consumer usually tries to smoothen its consumption over lifetime. Supposing that retirement age grows at a slower rate than life expectancy, the agents are going to need to save more to keep their expenditure leveled, once their retirement time is going to be larger comparing to the work time. In addition, a greater life span and a bigger retirement period make life more uncertain. These are all factors that might reduce consumption in the present period, and get people more averse to a risky attitude. Also as people expect to live longer, the value of life will increase, getting people more conservative to risk.

In the overall, in a scenario like the one pictured above, agents get more uncertain about their future, and tend to acquire more aversion to risk, compared to normal circumstances.

                  As seen above, the changes in patterns of consumption and risk are not even close our biggest problems, but we should be aware of them as they play a key role in how agents interact and influence our economies and markets.

 

Nuno Antunes 649

Advertisements

Author: studentnovasbe

Master student in Nova Sbe

Comments are closed.