Private Information and Misinformation in Subjective Life Expectancy

Abstract

Good retirement planning requires accurate estimation of the time horizon, that is, the lifespan. People may overestimate or underestimate their lifespan and, as a result, under- or over-save for their retirement. Determining to what extent a person overestimates or underestimates their lifespan requires the separation of private information (e.g. family longevity history) and misinformation (e.g. misperception of one’s related cohort life expectancy). This paper proposes a method to identify and separate the effects of private information and misinformation on one’s subjective life expectancy. The method requires the person to provide their subjective life expectancy estimations for not only themselves but also for their peers. We apply the method to a sample of about 700 Chinese adults aged 40 and above. We find that misinformation leads the respondents to overestimate their remaining lifespan by 18% on average. We also find that private information leads the respondents in our sample to believe that their remaining lifespan will be 12% longer on average than their peers of the same age and gender. However, the dispersion of the individual estimates is large, meaning that some people may significantly overestimate their lifespan while others significantly underestimate. Also, as age increases, the relative importance of private information in the subjective life expectancy increases as compared to misinformation.