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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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    Cited by:

    1. David Blake & John Pickles, 2021. "Mental Time Travel and Retirement Savings," JRFM, MDPI, vol. 14(12), pages 1-13, December.
    2. Olckers, Matthew, 2021. "On track for retirement?," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 76-88.
    3. Alejandro Herrera & Beatriz Muriel, 2024. "Retirement Planning for Certified Quinoa Farmers in the Southern Altiplano of Bolivia: Challenges and Opportunities," Development Research Working Paper Series 19/2024, Institute for Advanced Development Studies.
    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. 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.
    6. Callis, Zoe & Gerrans, Paul & Walker, Dana L. & Gignac, Gilles E., 2023. "The association between intelligence and financial literacy: A conceptual and meta-analytic review," Intelligence, Elsevier, vol. 100(C).
    7. Colleen Flaherty Manchester, 2019. "Retirement plan type and worker mobility," IZA World of Labor, Institute of Labor Economics (IZA), pages 461-461, October.
    8. Joshua Tasoff & Wenjie Zhang, 2022. "The Performance of Time-Preference and Risk-Preference Measures in Surveys," Management Science, INFORMS, vol. 68(2), pages 1149-1173, February.
    9. Gilles E. Gignac & Elizabeth Ooi, 2022. "Measurement error in research on financial literacy: How much error is there and how does it influence effect size estimates?," Journal of Consumer Affairs, Wiley Blackwell, vol. 56(2), pages 938-956, June.
    10. Ritwik Banerjee & Joydeep Bhattacharya & Priyama Majumdar, 2020. "Exponential-growth prediction bias and compliance with safety measures in the times of COVID-19," Papers 2005.01273, arXiv.org.
    11. Ye, Zihan & Post, Thomas & Zou, Xiaopeng & Chen, Shenglan, 2025. "Savings goals matter–Cognitive constraints, retirement planning, and downstream economic behaviors," Journal of Behavioral and Experimental Finance, Elsevier, vol. 46(C).
    12. Frank M. Fossen & Levent Neyse & Carsten Schröder, 2025. "Does Cognitive Reflection Relate to Preferences and Socioeconomic Outcomes?," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 3(2), pages 303-343.
    13. Isha Chawla & Joseph Svec, 2023. "Household savings and present bias among Chinese couples: A household bargaining approach," Journal of Consumer Affairs, Wiley Blackwell, vol. 57(1), pages 648-672, January.
    14. Bernheim, B. Douglas & Mueller-Gastell, Jonas, 2024. "Optimal default options," Journal of Public Economics, Elsevier, vol. 237(C).
    15. Wang-Ly, Nathan & Newell, Ben R., 2024. "Income volatility and saving decisions: Experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    16. Goda, Gopi Shah & Levy, Matthew R. & Flaherty Manchester, Colleen & Sojourner, Aaron & Tasoff, Joshua & Xiao, Jiusi, 2023. "Are retirement planning tools substitutes or complements to financial capability?," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 561-573.
    17. Thomas Meissner & Xavier Gassmann & Corinne Faure & Joachim Schleich, 2023. "Individual characteristics associated with risk and time preferences: A multi country representative survey," Journal of Risk and Uncertainty, Springer, vol. 66(1), pages 77-107, February.
    18. Gallego-Losada, Rocío & Montero-Navarro, Antonio & Rodríguez-Sánchez, José-Luis & González-Torres, Thais, 2022. "Retirement planning and financial literacy, at the crossroads. A bibliometric analysis," Finance Research Letters, Elsevier, vol. 44(C).
    19. Ngoc Dao, 2024. "Does a requirement to offer retirement plans help low‐income workers save for retirement? Early evidence from the OregonSaves program," Contemporary Economic Policy, Western Economic Association International, vol. 42(3), pages 524-543, July.

    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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