Pension Design and Structure: New Lessons from Behavioral Finance

Employees are increasingly asked to make sophisticated decisions about their pension and healthcare plans. Yet recent research shows that the decisions 'real' people make are often not those of the careful and well-informed economic agent conventionally portrayed in economic research. Rather, decision-makers tend to operate with flawed information and make some of the most critical financial decisions of their lives lacking a full understanding of the options before them and the implications of their decisions. Pension Design and Structure explores the assumptions behind commonly-held theories of retirement decision-making, in order to draw out the consequences of frontier research in behavioral finance and economics for those interested in better design and structure of retirement pensions. Using large datasets newly provided by financial service firms and real-world experiments, this volume tests the hypotheses of this research. This is the first book to explore the implications of behavioral finance research for pensions and retirement studies. The authors blend cutting-edge research from several fields including Finance, Economics, Management, Sociology, and Psychology. The book will be of interest to pension plan participants and sponsors, financial service groups responsible for pensions, and retirement system regulators. Contributors to this volume - John Ameriks, Senior Research Fellow, TIAA-CREF Institute James J. Choi, Harvard University Robert L. Clark, Professor of Business Management and Economics, North Carolina State University Madeleine B. d'Ambrosio, Vice President of TIAA-CREF and Executive Director of the TIAA-CREF Institute Matthew Drinkwater, Assistant Scientist, Retirement Research Unit, LIMRA International Esther Duflo, Castel Krob Career Development Associate Professor of Development Economics, MIT Gur Huberman, Professor, Graduate School of Business, Columbia University Wei Jiang, Assistant Professor of Finance, Columbia Business School David Laibson, Professor of Economics, Harvard University Annamaria Lusardi, Associate Professor of Economics, Dartmouth College Donna M. MacFarland, Senior Manager of the Institutional Marketing Research Department, Vanguard Brigitte Madrian, Associate Professor, Wharton School, University of Pennsylvania Carolyn D. Marconi, Principal, Marketing Research Group, Vanguard Ann A. McDermed, formerly of the College of Management, North Carolina State University Andrew Metrick, Associate Professor of Finance, Wharton School, University of Pennsylvania Olivia S. Mitchell, Executive Director of the Pension Research Council, Wharton School, University of Pennsylvania , Constantijn W. A. Panis, Senior Economist, RAND Emmanuel Saez, Assistant Professor of Economics, University of California-Berkeley Victor Saliterman, Senior Vice President, CIGNA Retirement & Investment Services, and President of CIGNA Financial Services Kshama Sawant, North Carolina State University Jason Scott, Director of Financial Research, Financial Engines Gary Selnow, Professor of Communication, San Fransisco State University, and Director of the World Internet Resources for Education and Development Sheena Sethi-Iyengar, Associate Professor of Management, Columbia Business School Barry G. Sheckley, Neag Professor of Adult Learning, Department of Educational Leadership, University of Connecticut Eric T. Sondergeld, Corporate Vice President and Director of Retirement Research, LIMRA Meir Statman, Glenn Klimek Professor of Finance, Santa Clara University Gregory Stein, Financial Development Group, Financial Engines Stephen P. Utkus, Director, Vanguard Center for Retirement Research Elke Weber, Professor of Management and Psychology, Columbia University, and Academic Director, Chazen Institute for International Business, Columbia Business School