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Predicting Retirement Savings Using Survey Measures Of Exponential‐Growth Bias And Present Bias

Author

Listed:
  • Gopi Shah Goda
  • Matthew Levy
  • Colleen Flaherty Manchester
  • Aaron Sojourner
  • Joshua Tasoff

Abstract

In a nationally representative sample, we predict retirement savings using survey‐based elicitations of exponential‐growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12%. (JEL D91, D14)

Suggested Citation

  • Gopi Shah Goda & Matthew Levy & Colleen Flaherty Manchester & Aaron Sojourner & Joshua Tasoff, 2019. "Predicting Retirement Savings Using Survey Measures Of Exponential‐Growth Bias And Present Bias," Economic Inquiry, Western Economic Association International, vol. 57(3), pages 1636-1658, July.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:3:p:1636-1658
    DOI: 10.1111/ecin.12792
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    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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