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Cognition, Optimism and the Formation of Age-Dependent Survival Beliefs

Author

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  • Nils Grevenbrock

    (European University Institute)

  • Max Groneck

    (University of Groningen)

  • Alexander Ludwig

    (SAFE, University of Mannheim)

  • Alexander Zimper

    (University of Pretoria)

Abstract

This paper investigates the roles psychological biases play in deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions. Our estimates suggest that implied measures for cognitive weakness increase and relative optimism decrease with age. We document that direct measures of cognitive weakness and optimism share these trends. Our regression analyses conrm that these factors play strong quantitative roles in the formation of subjective survival beliefs. Our main finding is that cognitive weakness rather than optimism is an increasingly important contributor to the well-documented overestimation of survival chances in old age.

Suggested Citation

  • Nils Grevenbrock & Max Groneck & Alexander Ludwig & Alexander Zimper, 2020. "Cognition, Optimism and the Formation of Age-Dependent Survival Beliefs," Working Papers 2020-018, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2020-018
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    2. Cormac O'Dea & David Sturrock, 2019. "Survival pessimism and the demand for annuities," IFS Working Papers W19/02, Institute for Fiscal Studies.
    3. Marta Cota, 2023. "Extrapolative Income Expectations and Retirement Savings," CERGE-EI Working Papers wp751, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Grevenbrock, Nils, 2020. "Dispositional optimism (and pessimism), wealth, and stock market participation," Journal of Economic Psychology, Elsevier, vol. 81(C).
    5. Nils Grevenbrock & Max Groneck & Alexander Ludwig & Alexander Zimper, 2021. "Cognition, Optimism, And The Formation Of Age‐Dependent Survival Beliefs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 887-918, May.
    6. Adriaan Kalwij & Vesile Kutlu Koc, 2021. "Is the accuracy of individuals' survival beliefs associated with their knowledge of population life expectancy?," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 45(14), pages 453-468.
    7. Sunde, Uwe, 2023. "Age, longevity, and preferences," The Journal of the Economics of Ageing, Elsevier, vol. 24(C).
    8. Richard Foltyn & Jonna Olsson, 2021. "Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality," Working Papers 2021_13, Business School - Economics, University of Glasgow.

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    More about this item

    Keywords

    subjective survival beliefs; probability weighting function; confirmatory bias; cognition; optimism; pessimism;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I10 - Health, Education, and Welfare - - Health - - - General

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