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PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL‐GROWTH BIAS AND PRESENT BIAS
Author(s) -
Goda Gopi Shah,
Levy Matthew,
Manchester Colleen Flaherty,
Sojourner Aaron,
Tasoff Joshua
Publication year - 2019
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12792
Subject(s) - economics , neglect , econometrics , financial literacy , value (mathematics) , actuarial science , sample (material) , set (abstract data type) , demographic economics , statistics , psychology , mathematics , finance , computer science , chemistry , chromatography , psychiatry , programming language
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)