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Subjective Probabilities in Household Surveys

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Author Info

  • Michael D. Hurd

    ()
    (RAND, Santa Monica, California 90407, and NBER)

Abstract

Subjective probabilities are now collected on a number of large household surveys with the objective of providing data to better understand intertemporal decision making. Comparison of subjective probabilities with actual outcomes shows that the probabilities have considerable predictive power in situations where individuals have considerable private information, such as survival and retirement. In contrast, the subjective probability of a stock market gain varies greatly across individuals even though no one has private information and the outcome is the same for everyone. An explanation is that there is considerable variation in accessing and processing information. Further, the subjective probability of a stock market gain is considerably lower than historical averages, providing an explanation for the relatively low frequency of stock holding. An important research objective will be to understand how individuals form their subjective probabilities.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.economics.050708.142955
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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 1 (2009)
Issue (Month): 1 (05)
Pages: 543-564

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Handle: RePEc:anr:reveco:v:1:y:2009:p:543-564

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Related research

Keywords: stock market expectations; subjective survival; retirement expectations; focal point responses;

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Cited by:
  1. Johannes Spinnewijn, 2012. "Heterogeneity, Demand for Insurance and Adverse Selection," CEP Discussion Papers dp1142, Centre for Economic Performance, LSE.
  2. Tas, Derya & Calvo-Pardo, Hector & Arrondel, Luc, 2012. "Subjective Return Expectations, Information and Stock Market Participation : Evidence from France," Economics Papers from University Paris Dauphine 123456789/9805, Paris Dauphine University.
  3. Provencher, Bill & Lewis, David J. & Anderson, Kathryn, 2012. "Disentangling preferences and expectations in stated preference analysis with respondent uncertainty: The case of invasive species prevention," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 169-182.
  4. Gábor Kézdi & Robert J. Willis, 2013. "Expectations, Aging and Cognitive Decline," NBER Chapters, in: Discoveries in the Economics of Aging, pages 305-337 National Bureau of Economic Research, Inc.
  5. Wuppermann, Amelie Catherine, 2011. "Empirical Essays in Health and Education Economics," Munich Dissertations in Economics 13187, University of Munich, Department of Economics.
  6. Kuo-Liang Chang & George Langelett & Andrew Waugh, 2011. "Health, Health Insurance, and Decision to Exit from Farming," Journal of Family and Economic Issues, Springer, vol. 32(2), pages 356-372, June.
  7. Delavande, Adeline & Gine, Xavier & McKenzie, David, 2009. "Measuring Subjective Expectations in Developing Countries: A Critical Review and New Evidence," Policy Research Working Paper Series 4824, The World Bank.
  8. John Payne & Namika Sagara & Suzanne Shu & Kirstin Appelt & Eric Johnson, 2013. "Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect," Journal of Risk and Uncertainty, Springer, vol. 46(1), pages 27-50, February.
  9. van Santen, Peter & Alessie, Rob & Kalwij, Adriaan, 2012. "Probabilistic survey questions and incorrect answers: Retirement income replacement rates," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 267-280.
  10. Binswanger, Johannes & Salm, Martin, 2013. "Does Everyone Use Probabilities? Intuitive and Rational Decisions about Stockholding," IZA Discussion Papers 7265, Institute for the Study of Labor (IZA).
  11. Trautmann, S.T. & Kuilen, G. van de, 2011. "Belief Elicitation: A Horse Race among Truth Serums," Discussion Paper 2011-117, Tilburg University, Center for Economic Research.
  12. Joachim Winter & Amelie C. Wuppermann, 2012. "Do they Know what's at Risk? Health Risk Perception among the Obese," CESifo Working Paper Series 3864, CESifo Group Munich.
  13. Cruces, Guillermo & Perez Truglia, Ricardo & Tetaz, Martin, 2011. "Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment," IZA Discussion Papers 5699, Institute for the Study of Labor (IZA).
  14. Marco Angrisani & Michael D. Hurd & Erik Meijer, 2012. "Investment Decisions in Retirement: The Role of Subjective Expectations," Working Papers wp274, University of Michigan, Michigan Retirement Research Center.
  15. Santos, Paulo & Barrett, Christopher B., 2011. "Persistent poverty and informal credit," Journal of Development Economics, Elsevier, vol. 96(2), pages 337-347, November.
  16. Alexander Zimper, 2012. "The emergence of "fifty-fifty" probability judgements in a conditional Savage world," Working Papers 201221, University of Pretoria, Department of Economics.
  17. de Bresser, Jochem & van Soest, Arthur, 2013. "Survey response in probabilistic questions and its impact on inference," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 65-84.
  18. Andrew M. Parker & Leandro S. Carvalho & Susann Rohwedder, 2013. "Cognitive Ability, Expectations, and Beliefs about the Future: Psychological Influences on Retirement Decisions," Working Papers wp298, University of Michigan, Michigan Retirement Research Center.
  19. Bruine de Bruin, Wändi & van der Klaauw, Wilbert & Topa, Giorgio & Downs, Julie S. & Fischhoff, Baruch & Armantier, Olivier, 2012. "The effect of question wording on consumers’ reported inflation expectations," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 749-757.

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