Estimating Second Order Probability Beliefs from Subjective Survival Data

65 Pages Posted: 28 Jul 2012

See all articles by Peter Hudomiet

Peter Hudomiet

RAND Corporation

Robert J. Willis

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 2012

Abstract

Based on subjective survival probability questions in the Health and Retirement Study (HRS), we use an econometric model to estimate the determinants of individual-level uncertainty about personal longevity. This model is built around the Modal Response Hypothesis (MRH), a mathematical expression of the idea that survey responses of 0, 50 or 100 percent to probability questions indicate a high level of uncertainty about the relevant probability. We show that subjective survival expectations in 2002 line up very well with realized mortality of the HRS respondents between 2002 and 2010. We show that the MRH model performs better than typically used models in the literature of subjective probabilities. Our model gives more accurate estimates of low probability events and it is able to predict the unusually high fraction of focal 0, 50 and 100 answers observed in many datasets on subjective probabilities. We show that subjects place too much weight on parents' age at death when forming expectations about their own longevity, while other covariates such as demographics, cognition, personality, subjective health and health behavior are underweighted. We also find that less educated people, smokers and women have less certain beliefs; and recent health shocks increase uncertainty about survival, too.

Suggested Citation

Hudomiet, Peter and Willis, Robert J., Estimating Second Order Probability Beliefs from Subjective Survival Data (July 2012). NBER Working Paper No. w18258. Available at SSRN: https://ssrn.com/abstract=2119013

Peter Hudomiet (Contact Author)

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Robert J. Willis

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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