We explicitly derive and explore the optimal consumption and portfolio policies of a loss- averse individual who endogenously updates his reference level over time. We find that he protects his current consumption by delaying painful reductions in consumption after a drop in wealth, and...

In this paper we extend the traditional life cycle model of saving and portfolio choice to allow for possible long-term unemployment spells to have permanent effects on subsequent labor income prospects. The risk of losing future labor income could imply strong human capital erosion for the...

Using a representative sample of Italian investors, we estimate the risk associated with social security benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of social security wealth. Pension risk varies across individuals in a way...