Working Paper: CEPR ID: DP14539
Authors: Nils Grevenbrock; Max Groneck; Alexander Ludwig; Alexander Zimper
Abstract: This paper investigates the roles psychological biases play in deviations betweensubjective survival beliefs (SSBs) and objective survival probabilities (OSPs). Wemodel deviations between SSBs and OSPs through age-dependent inverse S-shapedprobability weighting functions. Our estimates suggest that implied measures for cog-nitive weakness increase and relative optimism decrease with age. We document thatdirect measures of cognitive weakness and optimism share these trends. Our regressionanalyses confirm that these factors play strong quantitative roles in the formation ofsubjective survival beliefs. Our main finding is that cognitive weakness rather than op-timism is an increasingly important contributor to the well-documented overestimationof survival chances in old age.
Keywords: subjective survival beliefs; probability weighting function; confirmatory bias; cognition; optimism; pessimism
JEL Codes: D83; D91; I10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age (J14) | cognitive weakness (D91) |
| age (J14) | overestimation of survival chances (C41) |
| flatness of probability weighting function (C46) | overestimation of survival beliefs (at older ages) (D15) |
| cognitive weakness (D91) | subjective survival beliefs (SSBs) (D14) |
| optimism (D84) | subjective survival beliefs (SSBs) (D14) |
| cognitive weakness (D91) | overestimation of survival chances (C41) |
| cognitive weakness (D91) | flatness of probability weighting function (C46) |
| optimism (D84) | upward bias in subjective survival beliefs (SSBs) (E71) |