Evidence on Individual Preferences for Longevity Risk

Abstract

Abstract:The standard model of intertemporal choice assumes risk neutrality toward the length of life: due to additivity, agents are not sensitive to a mean preserving spread in the length of life. Using a survey fielded in the RAND American Life Panel (ALP), this paper provides empirical evidence on possible deviation from risk neutrality with respect to longevity in the U.S. population. The questions we ask allow to find the distribution as well as to quantify the degree of risk aversion with respect to the length of life in the population. We find evidence that roughly 75% of respondents were not neutral with respect to longevity risk. Higher income households are more likely to be risk averse. We do not find evidence that the degree of risk aversion varies with age or education.

Multivariate risk preferences in the quality‐adjusted life year model

“…Our findings for the risk apportionment task confirm the intuitive predictions of Bleichrodt, Crainich, and Eeckhoudt (2003) that people are risk averse and correlation seeking for duration and QoL. Concerning risk aversion, this is a reassuring finding, in accordance with previous evidence (Attema et al., 2013, 2016; Delprat et al., 2016). The finding of correlation seeking on the other hand is particularly interesting given the widespread evidence of correlation aversion for other outcomes (Ebert & van de Kuilen, 2015), although it has been found for the QALY model before (McNeil et al., 1981; Pliskin et al., 1980; Sutherland et al., 1982).…”