PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL-GROWTH BIAS AND PRESENT BIAS

Gopi Shah Goda, Matthew Levy, Colleen F Manchester, Aaron Sojourner, Joshua Tasoff

Research output: Contribution to journalArticle

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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).

Original languageEnglish (US)
Pages (from-to)1636-1658
Number of pages23
JournalEconomic Inquiry
Volume57
Issue number3
DOIs
StatePublished - Jul 1 2019

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Present bias
Retirement saving
Predictors
Financial literacy
Demographics
Neglect
Cognitive ability
Measurement error

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PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL-GROWTH BIAS AND PRESENT BIAS. / Goda, Gopi Shah; Levy, Matthew; Manchester, Colleen F; Sojourner, Aaron; Tasoff, Joshua.

In: Economic Inquiry, Vol. 57, No. 3, 01.07.2019, p. 1636-1658.

Research output: Contribution to journalArticle

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