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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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    References listed on IDEAS

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    1. Gopi Shah Goda & Colleen Flaherty Manchester & Aaron Sojourner, 2012. "What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving," NBER Working Papers 17927, National Bureau of Economic Research, Inc.
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    6. Goda, Gopi Shah & Manchester, Colleen Flaherty & Sojourner, Aaron J., 2014. "What will my account really be worth? Experimental evidence on how retirement income projections affect saving," Journal of Public Economics, Elsevier, vol. 119(C), pages 80-92.
    7. Annamaria Lusardi & Pierre-Carl Michaud & Olivia S. Mitchell, 2017. "Optimal Financial Knowledge and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 431-477.
    8. Chuang, Yating & Schechter, Laura, 2015. "Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results," Journal of Development Economics, Elsevier, vol. 117(C), pages 151-170.
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    Cited by:

    1. Goda, Gopi Shah & Levy, Matthew R. & Manchester, Colleen Flaherty & Sojourner, Aaron & Tasoff, Joshua, 2020. "Who is a passive saver under opt-in and auto-enrollment?," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 301-321.
    2. Victor Stango & Joanne Yoong & Jonathan Zinman, 2017. "Quicksand or Bedrock for Behavioral Economics? Assessing Foundational Empirical Questions," NBER Working Papers 23625, National Bureau of Economic Research, Inc.
    3. Banerjee, Ritwik & Bhattacharya, Joydeep & Majumdar, Priyama, 2020. "Exponential-Growth Prediction Bias and Compliance with Safety Measures in the Times of COVID-19," IZA Discussion Papers 13257, Institute of Labor Economics (IZA).
    4. Goda, Gopi Shah & Levy, Matthew R. & Manchester, Colleen Flaherty & Sojourner, Aaron & Tasoff, Joshua, 2020. "Who is a passive saver under opt-in and auto-enrollment?," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 301-321.
    5. Colleen Flaherty Manchester, 2019. "Retirement plan type and worker mobility," IZA World of Labor, Institute of Labor Economics (IZA), pages 461-461, October.
    6. Matthew Olckers, 2020. "On Track for Retirement?," Papers 2005.01692, arXiv.org, revised Sep 2020.

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    More about this item

    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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