Costly Attention and Retirement

Jamie Hentall MacCuish

Papers from arXiv.org

Abstract: In UK data, I document the prevalence of misbeliefs regarding the State Pension eligibility age (SPA) and these misbeliefs predictivity of retirement. Exploiting policy variation, I estimate a lifecycle model of retirement in which rationally inattentive households learning about uncertain pension policy endogenously generate misbeliefs. Endogenous misbeliefs explain 43\%-88\% of the excessive (given financial incentives) drop in employment at SPA. To achieve this, I develop a solution method for dynamic rational inattention models with history-dependent beliefs. Costly attention makes the SPA up to 15\% less effective at increasing old-age employment. Information letters improve welfare and increase employment.

Date: 2019-04, Revised 2024-12
New Economics Papers: this item is included in nep-age, nep-dge, nep-eur and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1904.06520

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