A Parsimonious Model of Subjective Life Expectancy

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URL:	https://ub-madoc.bib.uni-mannheim.de/1798
URN:	urn:nbn:de:bsz:180-madoc-17982
Document Type:	Working paper
Year of publication:	2007
The title of a journal, publication series:	None
Publication language:	English
Institution:	Außerfakultäre Einrichtungen > VWL insb Makroök u Wirtschaftspol (Börsch-Supan 1989-2011)
MADOC publication series:	Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject:	300 Social sciences, sociology, anthropology
Classification:	JEL: I10 D91 D83 C44 ,
Subject headings (SWD):	Lebenserwartung , Ambiguität , Bayes-Lernen
Keywords (English):	subjective survival expectations , ambiguity , Bayesian learning
Abstract:	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 survival 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 learning 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.
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