An Empirical Window on Rational Expectations Formation.

Abstract

Persons' expectations regarding their ultimate life span provide a tractable empirical opportunity to test for rational expectations. To the extent people only utilize information from "current life tables," they underestimate the more relevant ultimate life expectancy that results from on-going improvements in mortality experience not reflected in these tables. The expectations observed in the authors' empirical work are not consistent with rational-expectations models. All available information about life expectancies and their trends were not used by the surveyed households in forming life-span expectations. This deficiency precludes correct estimation of the ultimate life expectancy necessary for informed life-cycle choices. Copyright 1992 by MIT Press.