Living up to expectations: Experimental tests of subjective life expectancy as reference point in time trade-off and standard gamble

Earlier work suggested that subjective life expectancy (SLE) functions as reference point intime trade-off (TTO), but has not tested or modelled this explicitly. In this paper we constructa model based on prospect theory to investigate these predictions more thoroughly. Wereport the first experimental test of reference-dependence with respect to SLE for TTO andextend this approach to standard gamble (SG). In two experiments, subjects’ SLEs wereused to construct different versions of 10-year TTO and SG tasks, with the gauge durationeither described as occurring above or below life expectation. Our analyses suggest thatboth TTO and SG weights were affected by SLE as predicted by prospect theory with SLEas reference point. Subjects gave up fewer years in TTO and were less risk-tolerant in SGbelow SLE, implying that weights derived from these health state valuation methods fordurations below SLE will be biased upwards