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

Abstract

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.

Differential Survival in Europe and the United States: Estimates Based on Subjective Probabilities of Survival

“…These findings are consistent with those reported by Elder (2007), who investigated the predictive power of subjective probabilities of survival for actual mortality and documented biases. Biases in the level of survival do not affect the viability of our proposed method as long as the differentials across socioeconomic groups are preserved.…”

“…First, selection through mortality for a population in their early 60s is fairly small. Second, aging is associated with cognitive decline, and low cognition has been found to introduce bias into subjective expectations of survival (Elder 2007). …”

“…For instance, these subjective probabilities predict actual mortality (Bloom et al 2007; Elder 2007; Hurd and McGarry 1995, 2002; Siegel et al 2003; Smith et al 2001). They also vary systematically with known risk factors, such as smoking, and evolve in panel in response to information relevant to survival, such as parental death or onset of disease.…”

“…This suggests that individuals are able to predict their own survival. Finally, subjective probabilities have been shown to predict both expected and actual economic behavior (Bloom et al 2007; Delavande and Willis 2008; Elder 2007; Hurd et al 2004). This indicates that these expectations are meaningful to respondents when making decisions.…”

Rational expectations? An explorative study of subjective survival probabilities and lifestyle across Europe

“…Several studies have investigated the congruity between SSPs and actuarial survival probabilities to assess whether individuals' beliefs about their remaining lifetime are accurate. [4][5][6][7][8][9][10][11] Less congruity may imply inaccurate subjective expectations, but may also signal individuals' private information beyond what is accounted for in life tables. 9 Such information may be used by individuals when making economic decisions.…”