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Expectations, Life Expectancy, and Economic Behavior


  • Daniel S. Hamermesh


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.

Suggested Citation

  • Daniel S. Hamermesh, 1985. "Expectations, Life Expectancy, and Economic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 389-408.
  • Handle: RePEc:oup:qjecon:v:100:y:1985:i:2:p:389-408.

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    References listed on IDEAS

    1. Arthur, W B, 1981. "The Economics of Risks to Life," American Economic Review, American Economic Association, vol. 71(1), pages 54-64, March.
    2. Alicia H. Munnell, 1997. "Social Security: it ain't broken," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 297-303.
    3. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-577, June.
    4. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    5. Levhari, David & Mirman, Leonard J, 1977. "Savings and Consumption with an Uncertain Horizon," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 265-281, April.
    6. Turnovsky, Stephen J & Wachter, Michael L, 1972. "A Test of the "Expectations Hypothesis" Using Directly Observed Wage and Price Expectations," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 47-54, February.
    7. Kotlikoff, Laurence J & Spivak, Avia & Summers, Lawrence H, 1982. "The Adequacy of Savings," American Economic Review, American Economic Association, vol. 72(5), pages 1056-1069, December.
    8. Hamermesh, Daniel S, 1982. "Social Insurance and Consumption: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 72(1), pages 101-113, March.
    9. Jonung, Lars, 1981. "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, American Economic Association, vol. 71(5), pages 961-968, December.
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