The Impact of Individual Investment Behavior for Retirement Welfare: Evidence from the United States and Germany

risky asset share and the optimal one. For many parameter combinations, Americans
invest a smaller share into the risky asset, although the benchmark model’s solution
demands the opposite.

Women in the United States are better investors than their male counterparts; in
Germany, it is the opposite, assuming identical relative risk aversion. Assuming
heterogeneity in relative risk aversion γ —for example, three for German women and
two for German men or three for U.S. men and two for U.S. women (although the
latter assumption runs counter to the bulk of empirical and experimental research)—
can almost make gender-specific differences disappear.

With respect to net worth, being a good investor is associated in the United States
generally with individuals in the top half of the wealth distribution. Only for older
investors (age 65) lower wealth improves investment behavior. For Germans, the
better investors can be found at the lower and upper part of the wealth distribution
(again with an exception for older investors).

Except for older investors, being in higher income brackets generally leads to worse
investment performance for U.S. investors, whereas in Germany the opposite holds
true (for all age groups).

Education worsens investment performance for U.S. investors, whereas for Germans
slight improvements can be identified.

Assuming that higher relative risk aversion leads to lower welfare losses, assuming a
higher subjective discount factor increases welfare losses. Thus, to close the
performance gap between the United States and Germany, one needed higher risk
aversion and/or a lower subjective discount factor for U.S. investors.

7 Summary and Policy Implications

The analyses presented in this paper reveal the welfare consequences of suboptimal
investment behavior for U.S. and German individuals. In general, Germans appear to

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