Examining Income Expectations in the College and Early Post-College Periods: New Distributional Tests of Rational Expectations

Thomas Crossley (), Yifan Gong, Todd Stinebrickner and Ralph Stinebrickner

No 8834, CESifo Working Paper Series from CESifo

Abstract: Unique longitudinal probabilistic expectations data from the Berea Panel Study, which cover both college and early post-college periods, are used to examine young adults’ beliefs about their future incomes. We introduce a new measure of the ex post accuracy of beliefs, and two new approaches to testing whether, ex ante, agents exhibit Rational Expectations. We show that taking into account the additional information about higher moments of individual belief distributions contained in probabilistic expectations data is important for detecting types of violations of Rational Expectations that are not detectable by existing mean-based tests. Beliefs about future income are found to become more accurate as students progress through school and then enter the post-college period. Tests of Rational Expectations almost always reject for the in-school period, but the evidence against Rational Expectations is much weaker in the post-college period.

Keywords: subjective expectations; rational expectations; test; income uncertainty (search for similar items in EconPapers)
JEL-codes: D84 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-lma
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Examining Income Expectations in the College and Early Post-College Periods: New Distributional Tests of Rational Expectations (2024)
Working Paper: Examining income expectations in the college and early post-college periods: new distributional tests of rational expectations (2021)
Working Paper: Examining Income Expectations in the College and Early Post-college Periods: New Distributional Tests of Rational Expectations (2021)
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