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A behavioral gap in survival beliefs

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  • Giovanna Apicella
  • Enrico G. De Giorgi

Abstract

Life span uncertainty (longevity risk) impacts several economic decisions. Individuals can form and revise their survival beliefs making use of behavioral heuristics. We propose a model of sentiment, in which individuals are assumed to switch between optimistic and pessimistic expectations of their health. When optimism is persistent in the face of health shocks, or when individuals are more likely to change their sentiment from pessimistic to optimistic than otherwise, our model predicts survival underestimation at young ages and overestimation at old ages. An empirical analysis based on the longitudinal data from Survey of Health, Ageing and Retirement in Europe validates our model.

Suggested Citation

  • Giovanna Apicella & Enrico G. De Giorgi, 2024. "A behavioral gap in survival beliefs," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 91(1), pages 213-247, March.
    • Handle: RePEc:bla:jrinsu:v:91:y:2024:i:1:p:213-247
    DOI: 10.1111/jori.12459
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