How Do the Elderly Form Expectations? An Analysis of Responses to New Information
In this paper, I outline and test a simple theory that describes the evolution of expectations concerning social security benefits during the pre-retirement period. After correcting for the presences of measurement error, I obtain results that are consistent with this theory: expectations appear to evolve as a random walk, and innovations in this process are unrelated to previously available information. I also estimate responses of expectations to the arrival of new information. Although previous research indicates that individuals do not form expectations on the basis of all available information (and in particular ignore much of the information contained in concurrent statutory entitlements to social security benefits), responses to new information during the period immediately preceding retirement appear to be highly rational. The bulk of information affects the evolution of expectations only through its impact on actual benefit calculations. Furthermore, the data support the view that individuals form accurate assessments of the ultimate impact of new information on actual benefits.
|Date of creation:||Sep 1988|
|Date of revision:|
|Publication status:||published as How Do the Elderly Form Expectations? An Analysis of Responses to New Information , B. Douglas Bernheim. in Issues in the Economics of Aging , Wise. 1990|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Victor Zarnowitz, 1984. "Business Cycles Analysis and Expectational Survey Data," NBER Working Papers 1378, National Bureau of Economic Research, Inc.
- B. Douglas Bernheim, 1987.
"The Timing of Retirement: A Comparison of Expectations and Realizations,"
NBER Working Papers
2291, National Bureau of Economic Research, Inc.
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- Gary Burtless, 1986. "Social Security, Unanticipated Benefit Increases, and the Timing of Retirement," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 781-805.
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- B. Douglas Bernheim, 1987. "Social Security Benefits: An Empirical Study of Expectations and Realizations," NBER Working Papers 2257, National Bureau of Economic Research, Inc.
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