Volume 36, Number 2 (Spring) 2001
Bassett, William F., and Robin L. Lumsdaine. 2001. "Probability Limits: Are Subjective Assessments Adequately Accurate?" Journal of Human Resources 36(2):327-363.
The Health and Retirement Study asks respondents their subjective probabilities about 12 future events. An individual's responses contain a common component that is unrelated to the true probability of the event in question. Use of the entire set of an individual's responses to control for this unobserved individual heterogeneity can improve the information content in responses regarding intergenerational transfer and labor force participation plans. Although there is little overall gain from renormalization, in samples where the respondent may not fully have understood the question adjusting the responses for heterogeneity leads to an improved ability to predict outcomes in later waves.
William Bassett is an economist at the Board of Governors of the federal Reserve System. Robin Lumsdaine is a professor of economics at Brown University and is also a Research Associate, National Bureau of Economics research. The authors have benefitted from discussions with Andrew Foster, Michael Hurd, Chuck Manski, Ignacio Palacios-Huerta, and Mark Pitt. They also thank Bärbel Knäuper and an anonymous referee for helpful comments. Financial support from the National Institute on Aging through grant number R03-AG14173 is gratefully acknowledged. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors of the federal Reserve System. As part of the agreement for usage of the data, they note, "This analysis uses data from a preliminary release of HRS Wave 3. These data have not been cleaned and may contain errors that will be corrected in the final public release of HRS Wave 3." The data used in this article can be obtained beginning November 2001 through October 2004 from William F. Bassett, Board of Governors of the Federal Reserve System, 20th and C St., NW, Washington, D.C. 20551, wbassett@frb.gov .
© 2002 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X