Policy uncertainty can reduce individual welfare in cases when individuals have limited
opportunities to mitigate or insure against consumption fluctuations induced by the policy
uncertainty. For this reason, policy uncertainty surrounding future Social Security benefits may
have important welfare costs. We field an original survey to measure the degree of policy
uncertainty and to estimate the impact of this uncertainty on individual welfare. On average, our
survey respondents expect only about 60 percent of the benefits they are supposed to get under
current law. We document the wide variation around the expectation for most respondents and
the heterogeneity in the perceived distributions of future benefits across respondents. This
uncertainty has real costs. Our central estimates show that on average individuals would be
willing to forego 4 – 6 percent of the benefits they are supposed to get under current law to
remove the policy uncertainty associated with their future benefits. This translates to a risk
premium from policy uncertainty equal to 7 – 10 percent of expected benefits.