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Estimating Life Cycle Effects of Survival Probabilities in the Health and Retirement Study

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  • Michael Perry

    (University of Michigan)

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    Abstract

    This paper attempts to confirm the life-cycle relationship that lower subjective survival probabilities should lead to less positively sloped consumption trajectories. I use the results of six waves of subjective survival probability questions in the HRS to construct an index of survival belief that exploits the panel nature of the data by summarizing all of a respondent’s answers to such questions. In conjunction with constructed consumption values from the financial section of the HRS, I test the life-cycle relationship using OLS and Least-Absolute Deviation regression. I find weak evidence that the life-cycle effect of subjective survival probability is significant in a high-cognitive-ability sub-sample of the HRS. Measurement error in the constructed consumption data is problematic.

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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp103.pdf
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    Bibliographic Info

    Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp103.

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    Length: 49 pages
    Date of creation: Sep 2005
    Date of revision:
    Handle: RePEc:mrr:papers:wp103

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    1. Kuehlwein, Michael, 1993. "Life-Cycle and Altruistic Theories of Saving with Lifetime Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 38-47, February.
    2. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
    3. Michael D. Hurd & Kathleen McGarry, 1997. "The Predictive Validity of Subjective Probabilities of Survival," NBER Working Papers 6193, National Bureau of Economic Research, Inc.
    4. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
    5. Hamermesh, Daniel S, 1984. "Life-Cycle Effects on Consumption and Retirement," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 353-70, July.
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