Costly Attention and Retirement
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arXiv
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| Format: | Preprint |
| Publié: |
2019
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| _version_ | 1866910025007497216 |
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| author | Hentall-MacCuish, Jamie |
| author_facet | Hentall-MacCuish, Jamie |
| contents | In UK data, I document the prevalence of misbeliefs regarding the State Pension eligibility age (SPA) and their predictivity for retirement. Exploiting policy variation, I estimate a lifecycle model of retirement in which, motivated by patterns in belief data, rationally inattentive households learning about uncertain pension policy endogenously generates misbeliefs. Misbeliefs explain 51% of the excessive (given financial incentives) drop in employment at SPA when constrained to replicate the belief data patterns and completely explain it when not. To achieve this, I develop a solution method for dynamic rational inattention models with persistent beliefs. Costly attention makes the SPA up to 15% less effective at increasing old-age employment. Hence, information letters improve welfare and increase employment. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_1904_06520 |
| institution | arXiv |
| publishDate | 2019 |
| record_format | arxiv |
| spellingShingle | Costly Attention and Retirement Hentall-MacCuish, Jamie General Economics Economics In UK data, I document the prevalence of misbeliefs regarding the State Pension eligibility age (SPA) and their predictivity for retirement. Exploiting policy variation, I estimate a lifecycle model of retirement in which, motivated by patterns in belief data, rationally inattentive households learning about uncertain pension policy endogenously generates misbeliefs. Misbeliefs explain 51% of the excessive (given financial incentives) drop in employment at SPA when constrained to replicate the belief data patterns and completely explain it when not. To achieve this, I develop a solution method for dynamic rational inattention models with persistent beliefs. Costly attention makes the SPA up to 15% less effective at increasing old-age employment. Hence, information letters improve welfare and increase employment. |
| title | Costly Attention and Retirement |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/1904.06520 |