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Subjective mortality risk and bequests

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  • Gan, Li
  • Gong, Guan
  • Hurd, Michael
  • McFadden, Daniel

Abstract

This paper investigates the ability of subjective expectations about life expectancy to predict wealth holding patterns in later life. Based on panel data from the Asset and Health Dynamics among the Oldest Old, we estimate a structural life-cycle model with bequests. Each individual’s subjective survival rates in the future are estimated with data on his belief of survival probabilities to a target age. This estimation is build upon a Bayesian updating method developed in Gan et al. (2005). We find that life-cycle model using subjective survival rates performs better than using life-table survival rates in predicting wealth holdings. This result suggests that subjective survival expectations play an important role in deciding consumption and savings. In addition, the estimation results show that most bequests are involuntary or accidental.

Suggested Citation

  • Gan, Li & Gong, Guan & Hurd, Michael & McFadden, Daniel, 2015. "Subjective mortality risk and bequests," Journal of Econometrics, Elsevier, vol. 188(2), pages 514-525.
  • Handle: RePEc:eee:econom:v:188:y:2015:i:2:p:514-525
    DOI: 10.1016/j.jeconom.2015.03.015
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    Keywords

    Subjective mortality risk; Bequest; Life-cycle model; Median regression;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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