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Subjective Survival Probabilities in the Health and Retirement Study: Systematic Biases and Predictive Validity

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Author Info
Todd Elder (Michigan State University)
Abstract

Recent research has demonstrated that retirement planning and well-being are closely tied to probabilistic forecasts about future events. Using longitudinal data from the Health and Retirement Study, I show that individuals’ subjective survival forecasts exhibit systematic biases relative to life table data. In particular, many respondents fail to account for increases in yearly mortality rates with age, both longitudinally and in crosssection. Additionally, successive cohorts of the near elderly do not appear to revise survival forecasts to match increases in longevity. Forecasting bias may merely be due to the framing of questions designed to elicit expectations, but real biases may result in suboptimal savings rates and timing of retirement. Cross-sectional variation in subjective survival forecasts also appears to reflect differences in cognitive ability across respondents, suggesting that subjective information is more relevant for some individuals than others. Despite these shortcomings, subjective mortality probabilities predict actual mortality and portfolio choice, and they contain information not found in selfreported health status or objective measures of health limitations.

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Publisher Info
Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp159.

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Length: 51 pages
Date of creation: Oct 2007
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Handle: RePEc:mrr:papers:wp159

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  1. Juergen Jung, 2008. "Subjective Health Expectations," Caepr Working Papers 2008-016, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
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