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Even among households with similar socioeconomic characteristics, saving and wealth vary considerably. Life-cycle models attribute this variation to dtfferences in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, and income replacement rates. These factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption projile. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, weJind little support for these implications. The data are instead consistent with "rule of thumb," "mental accounting," or hyperbolic discounting theories of wealth accumulation. (JEL Dl, D91, E21)Wealth and saving vary considerably, even among households with similar socioeconomic characteristics (Steven Venti and David Wise, 1998;Annamaria Lusardi, 1999). The interpretation of this variation is a pivotal issue. If saving reflects rational, farsighted optimization, then low saving is simply an expression of preferences-saying that someone saves "too little" is comparable to asserting that he or she doesn't listen to enough classical music (Edward Lazear, 1994). If, however, households are shortsighted, boundedly rational, dynamically inconsistent, impulsive, or prone to regret, then the adequacy of saving is a well-posed and important empirical issue (B. Douglas Bernheim, 1995).Various factors could in principle account for NOTE: The reference numbering from the original has been maintained in this citation list.

This paper evaluates how useful the information contained in options prices is for predicting future price movements of the underlying assets. We develop an improved semiparametric methodology for estimating risk-neutral probability density functions (PDFs), which allows for skewness and intertemporal variation in higher moments. We use this technique to estimate a daily time series of riskneutral PDFs spanning the late 1980's through 1999, for S&P 500 futures, U.S. dollar/Japanese yen futures and U.S. dollar/deutsche mark futures, using options on these futures. For the foreign exchange futures, we find little discernable additional information contained in the estimated PDFs beyond the information derived from the Black-Scholes model, a fully parametric specification. For S&P 500 futures, we find that the riskneutral distribution implied by the volatility smile better fits the realized returns than the Black-Scholes model, although this better overall fit is not exhibited in the second and third moments.JEL Classification: F31, G13, G15