Biased survival expectations and behaviours: Does domain specific information matter?

Abstract

We study the formation of biased expectations across domains and examine whether they have a unique infuence on health and fnancial behaviors. Combining individual-level longitudinal, retrospective, and end of life data from several European countries for more than a decade, we estimate the time-varying individual level bias in ‘survival expectations’ (BSE) and compare it to a similar type of bias in the formation of ‘meteorological expectations’ (BME). We exploit the variation across individual’s family history (parental age at death) to evaluate the causal efect of BSE on health and fnancial behaviors, and we compare it to the efect of BME. This allows to investigate whether the BSE efect is due to private information, or another mechanism. We fnd that BSE increases the likelihood of engaging in less risky health and fnancial behaviors. We estimate that a one standard deviation increase in BSE reduces the average individual probability of smoking by 48% (and increase the probability of holding retirement accounts by 69%). In contrast, BME has little efect on healthy behaviors, and is only associated with a change in some fnancial behaviors.