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Longevity risk, subjective survival expectations, and individual saving behavior

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Abstract

We provide evidence of individuals' awareness of longevity risk (the uncertainty about future survival probabilities) based on subjective survival expectations elicited in the Survey of Health, Ageing and Retirement in Europe (SHARE) and matching data on longevity risk from the Human Mortality Database. We find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk. Our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty. Individuals do not save more on average when faced with longevity risk although theory suggests they should. (C) 2012 Elsevier B.V. All rights reserved.

    Research areas

  • Longevity risk, Subjective survival expectations, Forecast dispersion, Saving behavior, RATED LIFE EXPECTANCY, INFLATION UNCERTAINTY, FORECAST UNCERTAINTY, STOCK RETURNS, INFORMATION UNCERTAINTY, MORTALITY EXPECTATIONS, DEMAND UNCERTAINTY, ECONOMIC-ACTIVITY, UNITED-STATES, CONSUMPTION
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Details

Original languageEnglish
Pages (from-to)200-220
Number of pages21
JournalJournal of Economic Behavior & Organization
Volume86
DOIs
Publication statusPublished - Feb 2013