Precise or Imprecise Probabilities? Evidence from Survey Response Related to Late-onset Dementia

We elicit numerical expectations for late-onset dementia and long-term care (LTC) outcomes in the Health and Retirement Study. We provide the first empirical evidence on dementia-risk perceptions among dementia-free older Americans and establish important patterns regarding imprecision of subjective probabilities. Our elicitation distinguishes between precise and imprecise probabilities, while accounting for rounding of reports. Imprecise-probability respondents quantify imprecision using probability intervals. Nearly half of respondents hold imprecise dementia and LTC probabilities, while almost a third of precise-probability respondents round their reports. These proportions decrease substantially when LTC expectations are conditioned on hypothetical knowledge of the dementia state. Among rounding and imprecise-probability respondents, our elicitation yields two measures: an initial rounded or approximated response and a post-probe response, which we interpret as the respondent's true point or interval probability. We study the mapping between the two measures and find that respondents initially tend to over-report small probabilities and under-report large probabilities. Using a specific framework for study of LTC insurance choice with uncertain dementia state, we illustrate the dangers of ignoring imprecise or rounded probabilities for modelling and prediction of insurance demand.