What Will My Account Really Be Worth? an Experiment on Exponential Growth Bias and Retirement Saving

68 Pages Posted: 25 Mar 2012 Last revised: 2 Apr 2012

See all articles by Gopi Shah Goda

Gopi Shah Goda

Stanford University

Colleen Flaherty Manchester

University of Minnesota

Aaron Sojourner

University of Minnesota; IZA Institute of Labor Economics

Date Written: March 2012

Abstract

Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrollment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response.

Suggested Citation

Goda, Gopi Shah and Manchester, Colleen Flaherty and Sojourner, Aaron J., What Will My Account Really Be Worth? an Experiment on Exponential Growth Bias and Retirement Saving (March 2012). NBER Working Paper No. w17927. Available at SSRN: https://ssrn.com/abstract=2028262

Gopi Shah Goda (Contact Author)

Stanford University ( email )

SIEPR
366 Galvez St.
Stanford, CA 94305
United States
6507360480 (Phone)

Colleen Flaherty Manchester

University of Minnesota ( email )

3-300R CarlSMgmt
Minneapolis, MN 55455
United States
612 625-9667 (Phone)

Aaron J. Sojourner

University of Minnesota ( email )

Carlson School of Management
321 19th Ave S, 3-300
Minneapolis, MN 55455
United States
6126249521 (Phone)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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