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Expectations in micro data: rationality revisited

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  • Hugo Benítez-Silva

    ()

  • Debra Dwyer
  • Wayne-Roy Gayle
  • Thomas Muench

Abstract

An increasing number of longitudinal data sets collect expectations information regarding a variety of future individual level events and decisions, providing researchers with the opportunity to explore expectations over micro variables in detail. We present a theoretical framework and an econometric methodology to use that type of information to test the Rational Expectations (RE) hypothesis in models of individual behavior. This RE assumption at the micro level underlies a majority of the research in applied fields in economics, and it is the common foundation of most work in dynamic models of individual behavior. We present tests of three different types of expectations using two different panel data sets that represent two very different populations. In all three cases we cannot reject the RE hypothesis. Our results support a wide variety of models in economics, and other disciplines, that assume rational behavior.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 34 (2008)
Issue (Month): 2 (March)
Pages: 381-416

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Handle: RePEc:spr:empeco:v:34:y:2008:i:2:p:381-416

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Related research

Keywords: Rational expectations; Retirement; Longevity; Education expectations; Instrumental variables; Sample selection; D84; J26;

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References

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Citations

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Cited by:
  1. Hugo Benítez-Silva & Selcuk Eren & Frank Heiland & Sergi Jiménez-Martín, 2008. "How well do individuals predict the selling prices of their homes?," Economics Working Papers 1065, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008.
  2. Hugo Benitez-Silva & Huan Ni, 2007. "Health Status and Health Dynamics in an Empirical Model of Expected Longevity," Department of Economics Working Papers 07-04, Stony Brook University, Department of Economics.
  3. Juergen Jung, 2008. "Subjective Health Expectations," Caepr Working Papers 2008-016, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  4. Hugo Benítez-Silva & Debra S. Dwyer, 2003. "Expectation Formation of Older Married Couples and the Rational Expectations Hypothesis," Working Papers wp062, University of Michigan, Michigan Retirement Research Center.
  5. Hugo Benitez-Silva & Huan Ni, 2005. "Health Status and Health Dynamics in an Empirical Model of Expected Longevity," Department of Economics Working Papers 05-14, Stony Brook University, Department of Economics.
  6. Beatrice Scheubel & Daniel Schunk & Joachim Winter, 2009. "Don't Raise the Retirement Age! An Experiment on Opposition to Pension Reforms and East-West Differences in Germany," CESifo Working Paper Series 2752, CESifo Group Munich.
  7. Helen Levy & Kristin Seefeldt, 2008. "How Do Lower-Income Families Think about Retirement?," Working Papers wp195, University of Michigan, Michigan Retirement Research Center.

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