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Subjective Survival Probabilities in the Health and Retirement Study: Systematic Biases and Predictive Validity

  • Todd Elder

    (Michigan State University)

Recent research has demonstrated that retirement planning and well-being are closely tied to probabilistic forecasts about future events. Using longitudinal data from the Health and Retirement Study, I show that individuals’ subjective survival forecasts exhibit systematic biases relative to life table data. In particular, many respondents fail to account for increases in yearly mortality rates with age, both longitudinally and in crosssection. Additionally, successive cohorts of the near elderly do not appear to revise survival forecasts to match increases in longevity. Forecasting bias may merely be due to the framing of questions designed to elicit expectations, but real biases may result in suboptimal savings rates and timing of retirement. Cross-sectional variation in subjective survival forecasts also appears to reflect differences in cognitive ability across respondents, suggesting that subjective information is more relevant for some individuals than others. Despite these shortcomings, subjective mortality probabilities predict actual mortality and portfolio choice, and they contain information not found in selfreported health status or objective measures of health limitations.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp159.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp159.

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Length: 51 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:mrr:papers:wp159
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  1. John Laitner & Dan Silverman, 2005. "Estimating Life—Cycle Parameters from Consumption Behavior at Retirement”," Working Papers wp099, University of Michigan, Michigan Retirement Research Center.
  2. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  3. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  4. Michael D. Hurd & James P. Smith & Julie M. Zissimopoulos, 2002. "The Effects of Subjective Survival on Retirement and Social Security Claiming," NBER Working Papers 9140, National Bureau of Economic Research, Inc.
  5. David E. Bloom & David Canning & Michael Moore & Younghwan Song, 2006. "The Effect of Subjective Survival Probabilities on Retirement and Wealth in the United States," PGDA Working Papers 1706, Program on the Global Demography of Aging.
  6. Hamermesh, Daniel S, 1985. "Expectations, Life Expectancy, and Economic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 389-408, May.
  7. Michael D. Hurd & Kathleen McGarry, 2002. "The Predictive Validity of Subjective Probabilities of Survival," Economic Journal, Royal Economic Society, vol. 112(482), pages 966-985, October.
  8. Lee Lillard & Robert J. Willis, 2001. "Cognition and Wealth: The Importance of Probabilistic Thinking," Working Papers wp007, University of Michigan, Michigan Retirement Research Center.
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