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A simulated financial savings task for studying consumption and retirement decision making

Author

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  • Koehler, Derek J.
  • Langstaff, Jesse
  • Liu, Wu-Qi

Abstract

We describe a simulated financial decision making task that requires the participant to make decisions, over the course of a life cycle, regarding how much of their income to consume immediately and how much to save for a later retirement phase in which no income will be generated. The savings task was developed to be readily understood and performed online by members of a diverse participant population. A preliminary study (N=165) involving such a population was conducted in which performance on the savings task was observed as length of retirement phase and the presence of a consumption-smoothing goal were experimentally manipulated. Results suggested that most participants understood the task and responded sensibly; for example, they saved a greater portion of current income for later consumption when faced with a long, compared to a short, retirement phase. Responsiveness of saving levels during the task to retirement length was found to be correlated with an independent measure of participants’ financial risk attitudes. Consumption smoothing during the task was found to be correlated with a measure of individual differences among participants in temporal delay discounting. Compared to experimental savings tasks developed in previous research, the task described here may offer some practical advantages in requiring less extensive participant instructions, providing a user-friendly graphical interface, being readily performed online, and potentially being more accessible as a consequence to participants with limited education or financial sophistication.

Suggested Citation

  • Koehler, Derek J. & Langstaff, Jesse & Liu, Wu-Qi, 2015. "A simulated financial savings task for studying consumption and retirement decision making," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 89-97.
    • Handle: RePEc:eee:joepsy:v:46:y:2015:i:c:p:89-97
    DOI: 10.1016/j.joep.2014.12.004
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    Cited by:

    1. Manger, Mark S. & Matthews, J. Scott, 2021. "Knowing when to splurge: Precautionary saving and Chinese-Canadians," Journal of Asian Economics, Elsevier, vol. 76(C).
    2. John Duffy & Yue Li, 2016. "Lifecycle Consumption Under Different Income Profiles: Experimental Evidence," Working Papers 161702, University of California-Irvine, Department of Economics.
    3. Duffy, John & Li, Yue, 2019. "Lifecycle consumption under different income profiles: Evidence and theory," Journal of Economic Dynamics and Control, Elsevier, vol. 104(C), pages 74-94.
    4. repec:cup:judgdm:v:15:y:2020:i:1:p:112-134 is not listed on IDEAS
    5. Robert L. Clark & Robert G. Hammond & Christelle Khalaf, 2019. "Planning for Retirement? The Importance of Time Preferences," Journal of Labor Research, Springer, vol. 40(2), pages 127-150, June.
    6. Xuejun Jin & Xue Zhou & Xiaolan Yang, 2022. "How does economic policy uncertainty affect the relationship between household debt and consumption?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(5), pages 4783-4806, December.
    7. Mark S. Manger & J. Scott Matthews, 2021. "Knowing When to Splurge: Precautionary Saving and Chinese-Canadians," Papers 2108.00519, arXiv.org.
    8. Bachmann, Kremena & Lot, Andre & Xu, Xiaogeng & Hens, Thorsten, 2023. "Experimental Research on Retirement Decision-Making: Evidence from Replications," Journal of Banking & Finance, Elsevier, vol. 152(C).
    9. Yiyun Shou & Joel Olney, 2020. "Assessing a domain-specific risk-taking construct: A meta-analysis of reliability of the DOSPERT scale," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 15(1), pages 112-134, January.

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    More about this item

    Keywords

    Financial decision making; Life-cycle model of consumption; Intertemporal choice; Time preference; Risk attitudes; Retirement savings;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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