Individual Survival Curves Comparing Subjective and Observed Mortality Risks

Published in: Health Economics, Volume 26, Issue 12 (December 2017), Pages e285–e303. doi: 10.1002/hec.3506

Posted on RAND.org on March 13, 2018

by Luc Bissonnette, Michael D. Hurd, Pierre-Carl Michaud

Read More

Access further information on this document at Health Economics

This article was published outside of RAND. The full text of the article can be found at the link above.

We compare individual survival curves constructed from objective (actual mortality) and elicited subjective information (probability of survival to a given target age). We develop a methodology to estimate jointly subjective and objective individual survival curves accounting for rounding on subjective reports of perceived survival. We make use of the long follow-up period in the Health and Retirement Study and the high quality of mortality data to estimate individual survival curves that feature both observed and unobserved heterogeneity. This allows us to compare objective and subjective estimates of remaining life expectancy for various groups and compare welfare effects of objective and subjective mortality risk using the life cycle model of consumption. We find that subjective and objective hazards are not the same. The median welfare loss from misperceptions of mortality risk when annuities are not available is 7% of current wealth at age 65 whereas more than 25% of respondents have losses larger than 60% of wealth. When annuities are available and exogenously given, the welfare loss is substantially lower.

This report is part of the RAND Corporation external publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.