An Experimental Survey of Investment Decisions for Retirement Savings

Abstract

We conducted a choice experiment to investigate whether retirement savers follow simple portfolio theory when choosing investments. We modeled experimental survey data on 693 participants using a scale-adjusted version of the latent class choice model. Results show that underlying variability in response was explained by age and “risk profile” score, and that preferences varied with income and age. Younger individuals were conventionally risk averse but older, higher income individuals may react positively to both higher returns and increasing risk, when risk is presented as widening ranges of possible outcomes. Respondents tended to choose among a few similar investments options. Findings should assist regulators and providers to target assistance to “at risk” retirement savers.

Keywords: Investment choice, retirement savings, investment risk

JEL Classification: G23, G28, D14