Expectations, Life Expectancy, and Economic Behavior

Daniel S. Hamermesh

The Quarterly Journal of Economics, 1985, vol. 100, issue 2, 389-408

Abstract: The formation of individuals' horizons, which is central to the theory of life-cycle behavior, has been completely neglected. This is especially surprising, since the life expectancy of adults has recently increased rapidly in Western countries. This study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival. People do extrapolate past improvements in longevity when they determine their subjective horizons, and they are fully aware of levels of and movements within today's life tables. The subjective distribution has greater variance than its actuarial counterpart; and the subjective variance decreases with age. The implications of these findings for optimal Social Security, for the construction of annuities, for the analysis of savings behavior, and for evaluating lifetime earnings are discussed.

Date: 1985
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Working Paper: Expectations, Life Expectancy, and Economic Behavior (1982)
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