Expectations, Loss Aversion, and Retirement Decisions in the Context of the 2009 Crisis in Europe

Nicolas Sirven () and Thomas Barnay ()

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Abstract: We estimate a reduced form model of expectations-based reference-dependent preferences to explain job retention of older workers in Europe in the context of the 2009 economic crisis. Using individual micro-economic longitudinal data from SHARE (The Survey of ealth, Ageing, and Retirement in Europe) between 2006 and 2011, we derive a measure of "good, bad or no surprise" from (i) workers' anticipated evolution of their standard of living five years from 2006 (reference point), and from (ii) a comparison of their capacity to make-ends-meet between 2006 and 2011. We find that the probability to remain on the labour market in 2011 is significantly higher for individuals who experienced a lower than expected standard of living. The effect of a "bad surprise" on job retention is larger than the effect of a "good surprise" once netted out from the effects of expectations at baseline, change in consumption utility, and the usual lifecycle determinants on job retention of older workers. We interpret this result as an evidence of loss aversion in the case the reference point is based on individuals' expectations. We also find that loss aversion is more common among men, risk-averse individuals and those with a higher perceived life expectancy.

Keywords: Job retention; Behavioural economics; Loss aversion; SHARE data (search for similar items in EconPapers)
Date: 2016-06-01
New Economics Papers: this item is included in nep-age, nep-eur and nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01374462v1
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Related works:
Journal Article: Expectations, loss aversion and retirement decisions in the context of the 2009 crisis in Europe (2017)
Working Paper: EXPECTATIONS, LOSS AVERSION, AND RETIREMENT DECISIONS IN THE CONTEXT OF THE 2009 CRISIS IN EUROPE (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01374462

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