Template-Type: ReDIF-Paper 1.0
Title: Staying Together Forever? Life-Cycle Effects of Overoptimistic Couples
Author-Name: Ursula Berresheim
Author-Email: ursula.berresheim@uni-mannheim.de
Author-Name: David Koll
Author-Email: koll@uni-mannheim.de

Classification-JEL: D10, D84, E24, J12, J18, J22
Keywords: Intra-household decisions, Divorce, Subjective Expectations, Human Capital, Savings, Gender Equality, Taxation

Abstract: In the United States, 35–40% of all marriages end in divorce. Yet, we provide survey evidence that, 
on average, married respondents expect a divorce likelihood of 15%, with most
respondents significantly underestimating their predicted divorce risk. Our survey reveals
that individuals with more overoptimistic divorce expectations exhibit higher within-couple
inequality in market hours and earnings and accumulate significantly less wealth than their
rational counterparts. Building on this evidence, we incorporate overoptimistic divorce expectations 
into a household life-cycle model with endogenous accumulation of human capital, assets, and ex-ante heterogeneity in spouses’ wages. Couples jointly choose their market
hours, home production, and joint savings. We quantify the model using U.S. microdata and
show that overoptimism leads to (1) higher within-couple specialization and (2) lower savings, 
as overoptimistic lower-wage spouses fail to internalize the insurance value of human
capital and assets in the event of divorce. Overoptimism during marriage persists beyond 
divorce through lower assets and human capital upon divorce, with particularly adverse consequences for the lower-wage spouse. The model thus provides a novel explanation for the
high poverty rates observed among divorced mothers. Finally, we show that joint taxation of
married couples amplifies specialization among overoptimistic couples.



Note: 
Length: 97
Creation-Date: 2026-03
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp734
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_734