TY  - JOUR
AU  - Bernheim,B. Douglas
TI  - How Do the Elderly Form Expectations?  An Analysis of Responses to New Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2719
PY  - 1988
Y2  - September 1988
UR  - http://www.nber.org/papers/w2719
L1  - http://www.nber.org/papers/w2719.pdf
N1  - Author contact info:
B. Douglas Bernheim
Department of Economics
Stanford University
Stanford, CA 94305-6072
Tel: 650/725-8732
Fax: 650/725-5702
E-Mail: bernheim@stanford.edu
M1  - published as B. Douglas Bernheim. "How Do the Elderly Form Expectations? An Analysis of Responses to New Information," in David A. Wise, editor, "Issues in the Economics of Aging" University of Chicago Press, 1990 (1990)

AB  - 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.
ER  -