Who Can Predict Their Own Demise? Accuracy of Longevity Expectations by Education and Cognition

Tinbergen Institute Discussion Paper 15-052/V

47 Pages Posted: 11 May 2015

See all articles by Teresa Bago d'Uva

Teresa Bago d'Uva

Erasmus University Rotterdam (EUR) - Faculty of Economics; Tinbergen Institute

Esen Erdogan-Ciftci

Novartis

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Eddy van Doorslaer

Erasmus School of Economics

Date Written: May 7, 2015

Abstract

Biased longevity expectations will lead to suboptimal decisions regarding saving, retirement, annuitization and health, with consequences for wellbeing in old age. Systematic differences in the accuracy of longevity expectations may partly explain heterogeneity in economic behaviour by education and cognitive functioning. Analysis of eight waves of the US Health and Retirement Study reveals that individuals with lower levels of education and cognitive functioning report survival probabilities that are less accurate in predicting their in-sample mortality. There is little evidence that the gradients in the veracity of expectations are due to the less educated and cognitively able responding less to changes in objective mortality risks. However, high school dropouts and the least cognitively able report survival probabilities that are less stable and display greater un explained variability. These disadvantaged groups appear to be less confident in their longevity beliefs, which is justified given that their expectations are less accurate.

Keywords: Expectations, Mortality, Health, Cognition, Education

JEL Classification: D83, D84, I12, J14

Suggested Citation

Bago d'Uva, Teresa and Erdogan-Ciftci, Esen and O'Donnell, Owen and van Doorslaer, Eddy, Who Can Predict Their Own Demise? Accuracy of Longevity Expectations by Education and Cognition (May 7, 2015). Tinbergen Institute Discussion Paper 15-052/V. Available at SSRN: https://ssrn.com/abstract=2604021 or http://dx.doi.org/10.2139/ssrn.2604021

Teresa Bago d'Uva (Contact Author)

Erasmus University Rotterdam (EUR) - Faculty of Economics ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Esen Erdogan-Ciftci

Novartis ( email )

Turkey

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Eddy Van Doorslaer

Erasmus School of Economics ( email )

Netherlands

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