Private Information and Misinformation in Subjective Life Expectancy
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Private Information and Misinformation in Subjective Life Expectancy Dong Chen1 · Dennis Petrie2 · Kam Tang3 · Dongjie Wu3 Accepted: 13 August 2020 © Springer Nature B.V. 2020
Abstract Good retirement planning requires accurate estimation of the time horizon, that is, the lifespan. People may overestimate or underestimate their lifespan and, as a result, under- or over-save for their retirement. Determining to what extent a person overestimates or underestimates their lifespan requires the separation of private information (e.g. family longevity history) and misinformation (e.g. misperception of one’s related cohort life expectancy). This paper proposes a method to identify and separate the effects of private information and misinformation on one’s subjective life expectancy. The method requires the person to provide their subjective life expectancy estimations for not only themselves but also for their peers. We apply the method to a sample of about 700 Chinese adults aged 40 and above. We find that misinformation leads the respondents to overestimate their remaining lifespan by 18% on average. We also find that private information leads the respondents in our sample to believe that their remaining lifespan will be 12% longer on average than their peers of the same age and gender. However, the dispersion of the individual estimates is large, meaning that some people may significantly overestimate their lifespan while others significantly underestimate. Also, as age increases, the relative importance of private information in the subjective life expectancy increases as compared to misinformation. Keywords Life expectancy · Information · Savings · Longevity risk · Lifetable · China
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1120 5-020-02469-7) contains supplementary material, which is available to authorized users. * Kam Tang [email protected] 1
School of Economics, Shandong University, Jinan, China
2
Centre for Health Economics, Monash University, Caulfield, Australia
3
School of Economics, The University of Queensland, Brisbane, QLD 4072, Australia
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1 Introduction Many countries in Europe and Australasia have an ageing population due to both falling birth rates and rising life expectancy (LE) (Bloom et al. 2015). Prolonged LE could mean longer retirements for some people, but it could also mean that people have to work longer or save more during their working years to prepare for a potentially extended retirement. One of the pressing issues in ageing societies is how to fund the retirement of an expanding ‘grey’ population. In countries like Australia and China, many residents have to rely, at least partially, on private savings for retirement. In those cases, having a realistic estimation of one’s lifespan is important for retirement planning: how much to save for retirement; when to retire; how much to spend per year once retired; and whether or not to purchase an annuity. For instance, if people sign
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