Abstract
This study aims to understand the mechanisms through which severe memory problems could affect portfolio choice of older households. We focus on two potential mediators, cognitive ability and survival expectations, which are both expected to be adversely affected by memory disorders. Using data from the Health and Retirement Study, our findings show that cognitive ability and survival expectations are negatively associated with severe memory problems. Through the mediating role of cognitive ability, memory problems negatively affect the probability of holding risky assets, the amount of risky assets in the investment portfolios and financial wealth. Survival expectations, on the other hand, do not play a significant mediating role in portfolio allocation. In addition, the financial burden of severe memory problems does not seem to directly affect portfolio decisions.
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