Extrapolative Income Expectations and Retirement Savings
Marta Cota
CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague
Abstract:
Why do employees’ retirement contributions gradually increase throughout their careers? This paper uses a structural life-cycle model based on household expectations data to explain workers’ retirement contribution decisions. The Michigan Survey of Consumers data shows that young households extrapolate from their recent income realizations and overstate the persistence and volatility of their future income. The structural life-cycle model with extrapolative expectations quantifies the difference in retirement contribution rates compared to rational expectations. Contrary to rational workers, extrapolative workers’ contributions match the data on retirement contributions over the life cycle. Consequently, mandating automatic enrollment yields negligible effects on retirement savings.
Keywords: extrapolative expectations; forecast errors; illiquid savings; retirement contribution (search for similar items in EconPapers)
JEL-codes: E21 J26 J32 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-age and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
http://www.cerge-ei.cz/pdf/wp/Wp751.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp751
Access Statistics for this paper
More papers in CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Vasiljevova ().