NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Expectations, Aging and Cognitive Decline

Gábor Kézdi, Robert J. Willis

Chapter in NBER book Discoveries in the Economics of Aging (2014), David A. Wise, editor (p. 305 - 337)
Conference held May 9-11, 2013
Published in June 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research
in NBER Book Series - The Economics of Aging

We use longitudinal data from the HRS to document general patterns in expectations with respect to aging in various domains and investigate the potential role of cognitive decline in those patterns. We focus on two aspects of expectations: optimism and uncertainty. We estimate the effect of age controlling for cohort, selection and calendar time effects. With the notable exception of survival expectations, we find that optimism decreases with age in most domains. Uncertainty appears to increase with age in most cases except for survival expectations, but these findings are less robust. Using methods that minimize the likelihood of spurious associations due to survey noise, we show that cognitive decline plays a modest but statistically significant role in explaining the decline of optimism with age, again, with the exception of survival expectations. We do not find a role for cognitive decline in accounting for the increase in uncertainty.

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