Working Paper: NBER ID: w4560
Authors: Michael Hurd; Kathleen McGarry
Abstract: In the Health and Retirement Survey respondents were asked about the chances they would live to 75 or to 85, and the chances they would work after age 62 or 65. We analyze the responses to determine if they behave like probabilities, if their averages are close to average probabilities in the population, and if they have correlations with other variables that are similar to correlations with actual outcomes. We find that generally they do behave like probabilities and they do aggregate. Most remarkable, however, is that they covary with other variables in the same way actual outcomes vary with the variables. For example, smokers give lower probabilities of living to 75 than nonsmokers. We conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty.
Keywords: subjective probability; health and retirement survey; economic decision-making
JEL Codes: D84; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subjective probabilities (D80) | actual outcomes (P47) |
| subjective probabilities (D80) | decision-making models under uncertainty (D80) |
| smoking status (I12) | subjective probabilities of living to 75 (J26) |
| subjective probabilities (D80) | life table estimates (C41) |
| subjective probabilities (D80) | conditional probabilities (C25) |