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A Parsimonious Model of Subjective Life Expectancy


  • Alexander Ludwig


  • Alexander Zimper

    (Munich Center for the Economics of Aging (MEA))


This paper develops a theoretical model for the formation of subjective beliefs on individual survival expectations. Data from the Health and Retirement Study (HRS) indicate that, on average, young respondents underestimate their true sur- vival probability whereas old respondents overestimate their survival probability. Such subjective beliefs violate the rational expectations paradigm and are also not in line with the predictions of the rational Bayesian learning paradigm. We therefore introduce a model of Bayesian learning which combines rational learn- ing with the possibility that the interpretation of new information is prone to psychological attitudes. We estimate the parameters of our theoretical model by pooling the HRS data. Despite a parsimonious parametrization we find that our model results in a remarkable fit to the average subjective beliefs expressed in the data.

Suggested Citation

  • Alexander Ludwig & Alexander Zimper, 2007. "A Parsimonious Model of Subjective Life Expectancy," MEA discussion paper series 07154, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  • Handle: RePEc:mea:meawpa:07154

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    References listed on IDEAS

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    Cited by:

    1. De Donder, Philippe & Leroux, Marie-Louise, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," TSE Working Papers 12-352, Toulouse School of Economics (TSE), revised Feb 2013.
    2. Leroux, M.-L. & Pestieau, P. & Ponthiere, G., 2011. "Longevity, genes and efforts: An optimal taxation approach to prevention," Journal of Health Economics, Elsevier, vol. 30(1), pages 62-76, January.
    3. Leroux, Marie-Louise & Pestieau, Pierre & Ponthière, Grégory, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497, Décembre.
    4. Wu, Shang & Stevens, Ralph & Thorp, Susan, 2015. "Cohort and target age effects on subjective survival probabilities: Implications for models of the retirement phase," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 39-56.
    5. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C. & Zeldes, Stephen P., 2014. "What makes annuitization more appealing?," Journal of Public Economics, Elsevier, vol. 116(C), pages 2-16.
      • John Beshears & James Choi & David Laibson & Brigitte C. Madrian & Stephen P. Zeldes, 2012. "What Makes Annuitization More Appealing?," NBER Chapters,in: Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century National Bureau of Economic Research, Inc.
    6. Grevenbrock, Nils & Groneck, Max & Ludwig, Alexander & Zimper, Alexander, 2015. "Biased Survival Beliefs, Psychological and Cognitive Explanations, and the Demand for Life Insurances," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113203, Verein für Socialpolitik / German Economic Association.
    7. repec:mea:meawpa:13270 is not listed on IDEAS
    8. Huynh, Kim P. & Jung, Juergen, 2015. "Subjective health expectations," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 693-711.
    9. Drouhin, Nicolas, 2015. "A rank-dependent utility model of uncertain lifetime," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 208-224.
    10. Alexander Ludwig & Alexander Zimper, 2013. "A decision-theoretic model of asset-price underreaction and overreaction to dividend news," Annals of Finance, Springer, vol. 9(4), pages 625-665, November.
    11. Groneck, Max & Ludwig, Alexander & Zimper, Alexander, 2016. "A life-cycle model with ambiguous survival beliefs," Journal of Economic Theory, Elsevier, vol. 162(C), pages 137-180.
    12. Hippolyte D'Albis & Emmanuel Thibault, 2012. "Ambiguous Life Expectancy and the Demand for Annuities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00721281, HAL.
    13. De Donder Philippe & Leroux Marie-Louise, 2013. "Behavioral Biases and Long-Term Care Insurance: A Political Economy Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 551-575, May.
    14. Aylit Tina Romm, 2014. "An interpretation of focal point responses as non-additive beliefs," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 9(5), pages 387-402, September.
    15. Börsch-Supan, A. & Härtl, K. & Leite, D.N., 2016. "Social Security and Public Insurance," Handbook of the Economics of Population Aging, Elsevier.
    16. John Payne & Namika Sagara & Suzanne Shu & Kirstin Appelt & Eric Johnson, 2013. "Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect," Journal of Risk and Uncertainty, Springer, vol. 46(1), pages 27-50, February.
    17. Groneck, Max & Ludwig, Alexander & Zimper, Alexander, 2017. "The impact of biases in survival beliefs on savings behavior," SAFE Working Paper Series 169, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    18. Teresa Bago d'Uva & Esen Erdogan Ciftci & Owen O'Donnell & Eddy van Doorslaer, 2015. "Who can predict their Own Demise? Accuracy of Longevity Expectations by Education and Cognition," Tinbergen Institute Discussion Papers 15-052/V, Tinbergen Institute.
    19. Nicolas Drouhin, 2012. "A rank-dependent utility model of uncertain lifetime, time consistency and life insurance," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00748662, HAL.
    20. Marco Rojas & Damián Vergara, 2016. "Ambiguity is Detrimental for Long-Run Cooperation," Working Papers wp415, University of Chile, Department of Economics.
    21. repec:hal:journl:halshs-00721281 is not listed on IDEAS

    More about this item

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • 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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