Subjective mortality risk and bequests

Li Gan, Guan Gong, Michael Hurd and Daniel McFadden

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: This paper investigates the ability of subjective expectations about life expectancy to predict wealth holding patterns in later life. Based on panel data from the Asset and Health Dynamics among the Oldest Old, we estimate a structural life-cycle model with bequests. Each individual's subjective survival rates in the future are estimated with data on his belief of survival probabilities to a target age. This estimation is build upon a Bayesian updating method developed in Gan et al. (2005). We find that life-cycle model using subjective survival rates performs better than using life-table survival rates in predicting wealth holdings. This result suggests that subjective survival expectations play an important role in deciding consumption and savings. In addition, the estimation results show that most bequests are involuntary or accidental.

Keywords: Economics; Applied Economics; Aging; Clinical Research; Good Health and Well Being; Subjective mortality risk; Bequest; Life-cycle model; Median regression; C81; D91; Statistics; Econometrics; Applied economics (search for similar items in EconPapers)
Date: 2015-10-01
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Citations: View citations in EconPapers (6)

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