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Expectations, Loss Aversion, And Retirement Decisions In The Context Of The 2009 Crisis In Europe

Listed author(s):
  • Nicolas Sirven
  • Thomas Barnay

Purpose - The purpose of this paper is to estimate a reduced form model of expectations-based reference-dependent preferences to explain job retention of older workers in Europe in the context of the 2009 economic crisis. Design/methodology/approach - Using individual micro-economic longitudinal data from the Survey of Health, Ageing, and Retirement in Europe between 2006 and 2011, the authors derive a measure of “good, bad or no surprise” from workers’ anticipated evolution of their standard of living five years from 2006 (reference point) and from a comparison of their capacity to make ends meet between 2006 and 2011. Findings - The authors find that the probability to remain on the labour market in 2011 is significantly higher for individuals who experienced a lower than expected standard of living. The effect of a “bad surprise” on job retention is larger than the effect of a “good surprise” once netted out from the effects of expectations at baseline, change in consumption utility, and the usual life-cycle determinants on job retention of older workers. Originality/value - The authors interpret this result as an evidence of loss aversion in the case the reference point is based on individuals’ expectations. The authors also find that loss aversion is more common among men, risk-averse individuals and those with a higher perceived life expectancy.

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File URL: http://www.tepp-repec.eu/RePEc/files/teppwp/TEPP-wp-16-04-ns-tb.pdf
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Paper provided by TEPP in its series TEPP Working Paper with number 2016-04.

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Date of creation: 2016
Handle: RePEc:tep:teppwp:wp16-04
Contact details of provider: Postal:
Université Paris-Est Marne La Vallée, 5 bd Descartes, 77454 Champs sur Marne

Web page: http://www.tepp.eu/

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