Three Essays on Retirement Date Expectations and Saving Behavior

Abstract

This thesis consists of three different essays-organized as different chapters-that deal with

empirical as well as theoretical aspects of the economics of retirement. The first essay contributes

to the theoretical life-cycle literature by analyzing in depth the role of retirement date expectations

in determining saving behavior. As our main contribution, we demonstrate that the magnitude of the

reaction of consumption and saving behavior of younger individuals to a change in the retirement date

is largely determined by the degree to which utility is additively separable in consumption and leisure.

The second essay is an econometric study that uses data from the US Health and Retirement Study to

investigate whether Americans do, in fact, alter their saving behavior in response to changing retirement

date expectations. Our obtained point estimates suggest that the responsiveness of households' saving

behavior to retirement dates expectations is large. Finally, the third essay contributes to the literature

on the formation and rationality of retirement expectations, with particular emphasis on the role of

focal point responses. In this essay, we argue that the increased tendency with age to give a focal

point answer of probability one to the question regarding the probability of working full time after age

62, is the primary cause for the failure of this subjective probability to converge to the corresponding

objective probability over time. As our main contribution, we offer a novel interpretation of focal point

responses in terms of ambiguous beliefs dynamics that arise in new developments of decision theory

such as Choquet expected utility theory.