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Examining Income Expectations in the College and Early Post-college Periods: New Distributional Tests of Rational Expectations

Author

Listed:
  • Thomas Crossley
  • Yifan Gong
  • Todd R. Stinebrickner
  • Ralph Stinebrickner

Abstract

Unique longitudinal probabilistic expectations data from the Berea Panel Study, which cover both the college and early post-college periods, are used to examine young adults’ beliefs about their future incomes. We introduce a new measure of the ex post accuracy of beliefs, and two new approaches to testing whether, ex ante, agents exhibit Rational Expectations. We show that taking into account the additional information about higher moments of individual belief distributions contained in probabilistic expectations data is important for detecting types of violations of Rational Expectations that are not detectable by existing mean-based tests. Beliefs about future income are found to become more accurate as students progress through school and then enter the post-college period. Tests of Rational Expectations almost always reject for the in-school period, but the evidence against Rational Expectations is much weaker in the post-college period.

Suggested Citation

  • Thomas Crossley & Yifan Gong & Todd R. Stinebrickner & Ralph Stinebrickner, 2021. "Examining Income Expectations in the College and Early Post-college Periods: New Distributional Tests of Rational Expectations," NBER Working Papers 28353, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28353
    Note: ED EFG LS TWP
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    Cited by:

    1. Gizem Koşar & Cormac O'Dea, 2022. "Expectations Data in Structural Microeconomic Models," NBER Working Papers 30094, National Bureau of Economic Research, Inc.
    2. Benjamin Niswonger, 2022. "What You See is What You Get: Local Labor Markets and Skill Acquisition," Papers 2209.03892, arXiv.org.
    3. Yifan Chen & Jianhua Gang & Zongxin Qian & Jinfan Zhang, 2023. "Rationality test in the housing market: Project‐level evidence from China," Journal of Regional Science, Wiley Blackwell, vol. 63(3), pages 583-616, June.
    4. Pamela Giustinelli, 2022. "Expectations in Education: Framework, Elicitation, and Evidence," Working Papers 2022-026, Human Capital and Economic Opportunity Working Group.
    5. Orazio Attanasio & V’ctor Sancibri‡n & Federica Ambrosio, 2025. "New Measures for Richer Theories: Some Thoughts and an Example," Cowles Foundation Discussion Papers 2477, Cowles Foundation for Research in Economics, Yale University.
    6. Gabriella Conti & Pamela Giustinelli, 2025. "For Better or Worse? Subjective Expectations and Cost‐Benefit Trade‐Offs in Health Behavior: An Application to Lockdown Compliance in the United Kingdom," Health Economics, John Wiley & Sons, Ltd., vol. 34(5), pages 992-1012, May.
    7. Crossley, Thomas F. & Gong, Yifan & Stinebrickner, Ralph & Stinebrickner, Todd, 2022. "The ex post accuracy of subjective beliefs: A new measure and decomposition," Economics Letters, Elsevier, vol. 210(C).
    8. Gabriella Conti & Pamela Giustinelli, 2023. "For better or worse? Subjective expectations and cost-benefit trade-offs in health behavior," IFS Working Papers W23/19, Institute for Fiscal Studies.
    9. Jackson Bunting & Paul Diegert & Arnaud Maurel, 2024. "Heterogeneity, Uncertainty and Learning: Semiparametric Identification and Estimation," Papers 2402.08575, arXiv.org, revised Jun 2025.
    10. Yifan Gong & Todd Stinebrickner & Ralph Stinebrickner & Yuxi Yao, 2025. "The Role of Nonpecuniary Considerations: Location Decisions of College Graduates From Low‐Income Backgrounds," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 903-931, May.

    More about this item

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J0 - Labor and Demographic Economics - - General

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