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Expectation Formation of Older Married Couples and the Rational Expectations Hypothesis

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Author Info
Hugo Benítez-Silva (SUNY–Stony Brook)
Debra S. Dwyer (SUNY–Stony Brook)

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Abstract

This paper tests the Rational Expectations (RE) hypothesis regarding retirement expectations of married older American couples, controlling for sample selection and reporting biases. In prior research we found that individual retirement expectation formation was consistent with the Rational Expectation hypothesis, but in that work spousal considerations were not analyzed. In this research we take advantage of panel data on expectations to test the RE hypothesis among married individuals as well as joint expectations among couples. We find that regardless of whether we assume that married individuals form their own expectations taking spouse’s information as exogenous, or the reports of the couple are the result of a joint expectation formation process, their expectations are consistent with the RE hypothesis. Our results support a wide variety of models in economics that assume rational behavior for married couples.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp062.

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Length: 42 pages
Date of creation: Oct 2003
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Handle: RePEc:mrr:papers:wp062

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier. [Downloadable!] (restricted)
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  2. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March. [Downloadable!] (restricted)
  3. B. Douglas Bernheim, 1990. "How Do the Elderly Form Expectations? An Analysis of Responses to New Information," NBER Chapters, in: Issues in the Economics of Aging, pages 259-286 National Bureau of Economic Research, Inc. [Downloadable!]
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  4. Hugo Benítez-Silva & Debra S. Dwyer, 2003. "What to Expect when you are Expecting Rationality: Testing Rational Expectations using Micro Data," Working Papers wp037, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  5. B. Douglas Bernheim, 1989. "The Timing of Retirement: A Comparison of Expectations and Realizations," NBER Chapters, in: The Economics of Aging, pages 335-358 National Bureau of Economic Research, Inc. [Downloadable!]
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  6. B. Douglas Bernheim, 1987. "Social Security Benefits: An Empirical Study of Expectations and Realizations," NBER Working Papers 2257, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Stephen Bond & Céline Nauges & Frank Windmeijer, 2002. "Unit Roots and Identification in Autoregressive Panel Data Models: A Comparison of Alternative Tests," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C5-4, International Conferences on Panel Data. [Downloadable!]
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  12. J. Dominitz & C. F. Manski, . "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
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  13. Alan L. Gustman & Thomas L. Steinmeier, 1994. "Retirement in a Family Context: A Structural Model for Husbands and Wives," NBER Working Papers 4629, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Richard Disney & Sarah Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies. [Downloadable!]
  20. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. [Downloadable!] (restricted)
  21. Hugo Benitez-Silva, 2000. "Micro Determinants of Labor Force Status Among Older Americans," Department of Economics Working Papers 00-07, Stony Brook University, Department of Economics. [Downloadable!]
  22. Sargent, Thomas J. & Wallace, Neil, 1976. "Rational expectations and the theory of economic policy," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 169-183, April. [Downloadable!] (restricted)
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  23. Hugo Benítez-Silva & Debra S. Dwyer & Wayne-Roy Gayle & Thomas J. Muench, 2003. "Expectations in Micro Data: Rationality Revisited," Working Papers wp059, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  24. Michael Hurd & Susann Rohwedder, 2004. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers wp069, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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  25. Steven Haider & Melvin Stephens Jr., 2004. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," NBER Working Papers 10257, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  26. Donna B. Gilleskie & David M. Blau, 2006. "Health insurance and retirement of married couples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 935-953. [Downloadable!]
  27. Jeff Dominitz & Charles F. Manski & Jordan Heinz, 2002. "Social Security Expectations and Retirement Savings Decisions," NBER Working Papers 8718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  28. Schmalensee, Richard, 1976. "An Experimental Study of Expectation Formation," Econometrica, Econometric Society, vol. 44(1), pages 17-41, January. [Downloadable!] (restricted)
  29. Richard Blundell & Pierre-Andre Chiappori & Thierry Magnac & Costas Meghir, 2002. "Collective Labor Supply: Heterogeneity and Nonparticipation," Research Unit Working Papers 0210, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
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  30. Blau, David M., 1997. "Social security and the labor supply of older married couples," Labour Economics, Elsevier, vol. 4(4), pages 373-418, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Deborah A. Cobb-Clark & Steve Stillman, 2006. "The Retirement Expectations of Middle-Aged Individuals," CEPR Discussion Papers 540, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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