Recovering Longevity Expectations from Subjective Survival Probabilities: Uncertainty Matters

Abstract

According to economic theory, subjective longevity expectations should shape individual decision making regarding consumption and savings. A common way of eliciting longevity expectations is to ask for the subjective probability of survival to a certain age. However, there has been some dissent among economists about how to interpret the responses, given that subjects might not have a unique probability estimate in mind when answering such questions but rather a distribution of acceptable probability estimates. We enrich the discussion by providing new evidence for the idea that subjects tend to give responses reflecting the mode instead of the mean of their subjective probability distributions. This evidence includes a self-administered questionnaire as well as data from the Health and Retirement Study. We use this data to link related questions and make novel out-of-sample predictions. We also show that the elicited survival distributions are decent predictors of actual mortality and propose a new method to make longevity predictions based on relative instead of absolute subjective survival probabilities.