Life Expectancy Misperception and Adverse Selection

Zhanxiong Song

Adverse selection has long been discussed in annuity and life insurance markets, where individuals possess private information about their mortality and longevity risk that is unobservable to insurers. However, individuals themselves may also be imperfectly informed about their own longevity. What matters for insurance purchasing behavior is the perceived risk rather than the objective risk. Using data from the Survey of Health, Aging and Retirement in Europe (SHARE), this study aims to quantify the bias between the subjective and objective life expectancy in European countries for individuals over 50 and how this misperception is related to the likelihood of holding an annuity or life insurance products. The study expects to find that the belief heterogeneity on perceived remaining life expectancy among socioeconomic groups is also part of the lifespan inequality and generates inequalities in financial preparedness in old age.

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 Presented in Session P6. Health, Mortality, and Ageing 2