Three Essays on Expectations

Expectations play a major role in much economic modeling. Due to the difficulty in measuring them, however, they have played a smaller role in empirical economics. In this dissertation I use measurements of expectations from the Health and Retirement Study to examine several questions that could not otherwise be examined. In the first chapter, I examine three aspects of beliefs about future inheritances: their determinants, accuracy and effects. I find that these beliefs respond reasonably to outside factors, such as the death of a parent. I find that they are not extremely accurate and appear to contain measurement error. Finally, I find little evidence that inheritance expectations affect retirement behavior, but some evidence that an inheritance itself makes a person more likely to retire. In the second chapter, I concentrate on the effects of an inheritance on retirement behavior, with an emphasis on unexpected inheritances. I present a model of retirement demonstrating how an inheritance might lead someone to retire sooner and how an unexpected inheritance should have a larger observed effect than an expected one. Empirically, I confirm that those who receive inheritances do have a higher probability of retiring immediately than those who do not, but I cannot confirm that unexpected inheritances have a larger effect. In chapter three, I test the simple prediction, arising from a lifecycle model with no annuitization, that the slope of consumption over time should be positively correlated with a person's longevity expectations. I tentatively confirm that this is so for coupled individuals--particularly those with higher levels of education. The analysis is significantly hindered by measurement error in consumption measures.