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July 2001

The Importance of Social Security Benefits

In 1998, 90% of people aged 65 or older received OASDI benefits. These benefits were the major source of income for 63% of these people. For these 63%, OASDI benefits provided 50% or more of their total income. For 18% of those receiving benefits it was the only source of income.

when respondents say that an event has, for example, a 30 percent or a 70 percent chance of happening, we assume that reflects a greater certainty about the true probability. Thus, we propose that individuals who make more precise guesses are more confident about the accuracy of their guess.

An important aspect of our argument is that people don’t make these guesses in a vacuum but based on their own experience. Although we do not explore it fully in this paper, it may be that people can become more competent probabilistic thinkers through experience. The precision of a person’s beliefs may depend on his or her education, cognitive ability and experience in either making or observing decisions.

The confidence that is indicated by precise guesses, we propose, leads people to be willing to take greater risks, in this case, where financial matters are concerned. On the other hand, given a lot of uncertainty, people will tend to make a more conservative decision--one that they think will give them a more certain outcome. In our analyses, we examine the relationship between the precision of guesses (probabilistic thinking) and two financial outcomes: the fraction of risky assets (ones which tend to have a higher rate of growth) and the actual growth rate of those assets held by a household.

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