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Expectations in Micro Data: Rationality Revisited

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Author Info
Hugo Benitez-Silva () (Dept. of Economics, SUNY at Stony Brook)
Debra S. Dwyer (Dept. of Economics, SUNY at Stony Brook)
Wayne-Roy Gayle (University of Virginia)
Tom Muench (Dept. of Economics, SUNY at Stony Brook)
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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File URL: http://ms.cc.sunysb.edu/~hbenitezsilv/empecon_final.pdf
File Format: application/pdf
File Function: First version, 2005
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Publisher Info
Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 05-04.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 49 pages.
Date of creation: 2005
Date of revision:
Handle: RePEc:nys:sunysb:05-04

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Postal: Stony Brook, NY 11794-4384
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Web page: http://www.sunysb.edu/economics
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Related research
Keywords: Rational Expectations; Retirement; Longevity; and Education Expectations; Instrumental Variables; Sample Selection.;

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Find related papers by JEL classification:
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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  1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003. [Downloadable!]
    Other versions:
  2. 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!]
    Other versions:
  3. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 33-58, January.
  4. Black, Dan & Sanders, Seth & Taylor, Lowell, 2003. "Measurement of Higher Education in the Census and Current Population Survey," Journal of the American Statistical Association, American Statistical Association, vol. 98, pages 545-554, January. [Downloadable!] (restricted)
  5. de Leeuw, Frank & McKelvey, Michael J, 1984. "Price Expectations of Business Firms: Bias in the Short and Long Run," American Economic Review, American Economic Association, vol. 74(1), pages 99-110, March. [Downloadable!] (restricted)
  6. Benitez-Silva, Hugo & Dwyer, Debra S., 2006. "Expectation formation of older married couples and the rational expectations hypothesis," Labour Economics, Elsevier, vol. 13(2), pages 191-218, April. [Downloadable!] (restricted)
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  7. David F. Hendry & Neil R. Ericsson, 1999. "Encompassing and rational expectations: How sequential corroboration can imply refutation," Empirical Economics, Springer, vol. 24(1), pages 1-21. [Downloadable!] (restricted)
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  8. Christiansen, Charlotte, 2003. "Testing the expectations hypothesis using long-maturity forward rates," Economics Letters, Elsevier, vol. 78(2), pages 175-180, February. [Downloadable!] (restricted)
  9. Das, M. & Soest, A. van, 2000. "Expected versus realized income changes : a test of the rational expectations hypothesis," Discussion Paper 105, Tilburg University, Center for Economic Research. [Downloadable!]
  10. Das, Marcel & van Soest, Arthur, 1997. "Expected and realized income changes: Evidence from the Dutch socio-economic panel," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 137-154, January. [Downloadable!] (restricted)
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  11. Hugo Benítez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, November. [Downloadable!] (restricted)
  12. 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)
    Other versions:
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