Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



We develop a life-cycle model with optimal consumption, portfolio choice, and flexible work hours for households with loss-framing preferences giving them disutility if they experience losses from stock investments. Structural estimation using U.S. data shows that the model tracks the empirical age-pattern of stock market participants’ financial wealth, stock shares, and work hours remarkably well. Including stock market participation costs in the model allows us to also predict low stock market participations rates observed in the overall population. Allowing for heterogeneous agents further improves explanatory power and accounts for the observed discrepancy in wealth accumulation between stockholders and non-stockholders.


life-cycle model, portfolio choice, household finance, loss aversion, simulated method of moments

JEL Code

D15, G11, G40, G51

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2022 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors are grateful for research support from the German Investment and Asset Management Association (BVI) and to the Hessian Competence Center for High Performance Computing (HKHLR) for granting us computing time on the Goethe High Performance Computer and Lichtenberg High Performance Computer. We are particularly thankful to Yannick Dillschneider, Wolfram Horneff, Markus Ibert, Leonid Kogan, Holger Kraft, André Meyer-Wehmann, Olivia S. Mitchell, and Paolo Sodini for helpful comments.

Included in

Economics Commons



Date Posted: 08 February 2022