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What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making

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  • Sewin Chan
  • Ann Huff Stevens

Abstract

This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives. We find that well-informed individuals are five times more responsive to pension incentives than the average individual when knowledge is ignored. We further find that the ill-informed individuals do respond to their own misperception of the incentives, rather than being unresponsive to any incentives.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10185.

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Date of creation: Dec 2003
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Publication status: published as Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, 04.
Handle: RePEc:nbr:nberwo:10185

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  1. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1990. "Three Models of Retirement: Computational Complexity Versus Predictive Validity," NBER Working Papers 3558, National Bureau of Economic Research, Inc.
  2. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," NBER Working Papers 8655, National Bureau of Economic Research, Inc.
  3. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Imperfect Knowledge, Retirement and Saving," Working Papers, University of Michigan, Michigan Retirement Research Center wp012, University of Michigan, Michigan Retirement Research Center.
  4. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," NBER Working Papers 5667, National Bureau of Economic Research, Inc.
  5. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 70(2), pages 207-236, November.
  6. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, Econometric Society, vol. 58(5), pages 1151-80, September.
  7. Chan Sewin & Stevens Ann H, 2004. "How Does Job Loss Affect the Timing of Retirement?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 3(1), pages 1-26, May.
  8. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  9. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," Working Papers, University of Michigan, Michigan Retirement Research Center wp002, University of Michigan, Michigan Retirement Research Center.
  10. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  11. Esther Duflo & Emmanuel Saez, 2002. "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment," NBER Working Papers 8885, National Bureau of Economic Research, Inc.
  12. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 21-39, January.
  13. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, Elsevier, vol. 85(1), pages 121-148, July.
  14. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, Elsevier, vol. 88(7-8), pages 1307-1333, July.
  15. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments, The Field Experiments Website 00141, The Field Experiments Website.
  16. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
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