What to Expect when you are Expecting Rationality: Testing Rational Expectations using Micro Data
Benítez-Silva, Hugo A.; Dwyer, Debra Sabatini
2003-06
Abstract
This paper tests the Rational Expectations (RE) hypothesis regarding retirement expectations, controlling for sample selection, reporting biases, and unobserved heterogeneity. We find that retirement expectations in the Health and Retirement Study (HRS) are consistent with the RE hypothesis. We also examine how a wide array of factors, such as wealth, income, health insurance, pensions, and health status influence retirement expectations formation using panel data from all available waves of the HRS. We further analyze how new information affects the evolution of retirement expectations and discover that, on average, individuals correctly anticipate most uncertain events when planning their retirement, except for some health conditions and economic factors. Our results have important implications for a wide variety of models in economics that assume rational behavior.Publisher
Michigan Retirement Research Center, University of Michigan, P.O. Box 1248, Ann Arbor, MI 48104
Series/Report no.
WP 2003-037
Types
Working Paper
Metadata
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