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How Real People Make Long-Term Decisions: The Case of Retirement Preparation

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  • Binswanger, J.
  • Carman, K.G.

    (Tilburg University, Center for Economic Research)

Abstract

A canonical but untested assumption in economics is that choices are determined only by preferences and budget constraints, but not by how people approach decision making. In particular, it is believed that people behave “as if they optimized”, even if they do not engage in any formal planning. We test this empirically in the domain of retirement saving using a specifically designed survey. We find that people who rely on a rule of thumb indeed behave like literal planners/optimizers. However, people without any systematic approach save substantially less. We discuss the implications of this finding.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2009-73.

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Date of creation: 2009
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Handle: RePEc:dgr:kubcen:200973

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Web page: http://center.uvt.nl

Related research

Keywords: Decision process; planning; rule of thumb; retirement saving; household finance;

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References

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Citations

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Cited by:
  1. Binswanger, J. & Carman, K.G., 2010. "The Miracle of Compound Interest: Does our Intuition Fail?," Discussion Paper 2010-137, Tilburg University, Center for Economic Research.
  2. Binswanger, J. & Carman, K.G., 2011. "The Role of Desicion Making Processes in the Correlation between Wealth and Health," Discussion Paper 2011-005, Tilburg University, Center for Economic Research.

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