Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/339485 
Year of Publication: 
2025
Series/Report no.: 
IFS Working Papers No. 25/14
Publisher: 
The Institute for Fiscal Studies (IFS), London
Abstract: 
In UK data, I document the prevalence of misbeliefs regarding the State Pension eligibility age (SPA) and these misbeliefs' predictivity of retirement. Exploiting policy variation, I estimate a lifecycle model of retirement in which rationally inattentive households learning about uncertain pension policy endogenously generates misbeliefs. Endogenous misbeliefs explain 43%-88% of the excessive (given financial incentives) drop in employment at SPA. To achieve this, I develop a solution method for dynamic rational inattention models with history-dependent beliefs. Costly attention makes the SPA up to 15% less effective at increasing old-age employment. Information letters improve welfare and increase employment.
Subjects: 
Rational inattention
Retirement
Misbeliefs
Pensions
Behavioral Macro
Structural Econometrics
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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