Doctoral research: subjective expectations and their influence on economic decisions of the elderly

What influence do subjective expectations have on economic decisions of the elderly? This is because different perceptions about their future and uncertain events can be distinguished among the elderly. The doctoral research by Lkhagvaa Erdenesuren (Tilburg University) provides insight into this through three essays. This research was funded by Instituut Gak.

The first essay examines both the actual and perceived survival rates of married couples. This is a factor affecting savings, timing of retirement, inheritance and insurance choices. The results show that spousal survival rates are positively correlated, both objectively and subjectively. The so-called grief effect is important for objective chances, but less so for subjective chances. This effect refers to the negative impact of a spouse’s death on the survival chances of the spouse left behind.

The second essay focuses on the labour supply of older workers. What impact will pension reforms that raise the legal retirement age have on this? Political debates and media coverage can create anticipation of these reforms. The results show that anticipating reforms has a positive effect on the probability of staying in work. The essay also examines possible alternative paths to early retirement, such as registering as disabled or unemployed. No evidence to support such strategies follows from this.

The third essay looks at savings motives of retirees. This is done with self-reported probabilities of leaving a bequest. The results indicate a strong and widespread inheritance motive, in addition to a precautionary motive. The first motive refers to retirees saving to leave a bequest to their heirs. The second motive refers to saving to protect themselves against risks in old age, such as unexpected medical expenses. The essay shows the impact of policy changes around medical expenses and inheritance tax on saving behaviour.

In summary, this thesis uses subjective expectations to improve economic analysis and provide insights into survival rates, responses to pension reforms and savings motives among the elderly. These findings have practical implications for policymakers, especially in the areas of pension reforms, life insurance and health insurance.

Want to know more?

Read the PhD thesis ‘Expectation, Anticipation, and Identification: Essays on Subjective Expectations and Economic Decision-Making’. Lkhagvaa’s PhD ceremony took place on 18 December at 4 pm.