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A parsimonious model of subjective life expectancy

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  • A. Ludwig

    ()

  • A. Zimper

    ()

Abstract

On average, “young” people underestimate whereas “old” people overestimate their chances to survive into the future. Such subjective survival beliefs violate the rational expectations paradigm and are also not in line with models of rational Bayesian learning. In order to explain these empirical patterns in a parsimonious manner, we assume that self-reported beliefs express likelihood insensitivity and can, therefore, be modeled as non-additive beliefs. In a next step we introduce a closed form model of Bayesian learning for non-additive beliefs which combines rational learning with psychological attitudes in the interpretation of information. Our model gives a remarkable fit to average subjective survival beliefs reported in the Health and Retirement Study. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 75 (2013)
Issue (Month): 4 (October)
Pages: 519-541

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Handle: RePEc:kap:theord:v:75:y:2013:i:4:p:519-541

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Web page: http://www.springerlink.com/link.asp?id=100341

Related research

Keywords: Representative agent; Subjective survival expectations ; Likelihood insensitivity; Choquet decision theory; Bayesian learning; C44; D83; D91; I10;

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References

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Citations

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Cited by:
  1. De Donder, Philippe & Leroux, Marie-Louise, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," IDEI Working Papers 749, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2013.
  2. Hippolyte d'Albis & Emmanuel Thibault, 2012. "Ambiguous Life Expectancy and the Demand for Annuities," Documents de travail du Centre d'Economie de la Sorbonne 12050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Alexander Ludwig & Alexander Zimper, 2012. "A decision-theoretic model of asset-price underreaction and overreaction to dividend news," Working Papers 201223, University of Pretoria, Department of Economics.
  4. Alexander Zimper & Alexander Ludwig & Max Groneck, 2012. "A Life-Cycle Consumption Model with Ambiguous Survival Beliefs," 2012 Meeting Papers 693, Society for Economic Dynamics.
  5. repec:hal:wpaper:halshs-00748662 is not listed on IDEAS
  6. DE DONDER, Philippe & LEROUX, Marie-Louise, 2013. "Behavioral biases and long term care insurance: A political economy approach," CORE Discussion Papers 2013020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. repec:hal:cesptp:halshs-00748662 is not listed on IDEAS
  8. Hippolyte D'Albis & Emmanuel Thibault, 2012. "Ambiguous Life Expectancy and the Demand for Annuities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00721281, HAL.
  9. Kim P. Huynh & Juergen Jung, 2010. "Subjective Health Expectations," Working Papers 2010-08, Towson University, Department of Economics, revised May 2014.
  10. Groneck, Max & Ludwig, Alexander & Zimper, Alexander, 2013. "A Life-Cycle Model with Ambiguous Survival Beliefs," MEA discussion paper series 13270, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  11. repec:hal:journl:halshs-00721281 is not listed on IDEAS
  12. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, . "Longevity, genes and efforts: an optimal taxation approach to prevention," CORE Discussion Papers RP -2309, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian & Stephen P. Zeldes, 2012. "What Makes Annuitization More Appealing?," NBER Working Papers 18575, National Bureau of Economic Research, Inc.

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