Expectations, Life Expectancy, and Economic Behavior
The formation of individuals' horizons, which is central to the theory of life-cycle behavior, has been completely neglected. This is especially surprising, since the life expectancy of adults has recently increased rapidly in Western countries. This study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival. People do extrapolate past improvements in longevity when they determine their subjective horizons, and they are fully aware of levels of and movements within today's life tables. The subjective distribution has greater variance than its actuarial counterpart; and the subjective variance decreases with age. The implications of these findings for optimal Social Security, for the construction of annuities, for the analysis of savings behavior, and for evaluating lifetime earnings are discussed.
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Volume (Year): 100 (1985)
Issue (Month): 2 ()
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- Stephen J. Turnovsky & Michael L. Wachter, 1971. "A test of the "expectations hypothesis" using directly observed wage and price expectations," Staff Studies 63, Board of Governors of the Federal Reserve System (U.S.).
- Jonung, Lars, 1981. "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, American Economic Association, vol. 71(5), pages 961-968, December. Full references (including those not matched with items on IDEAS)
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