Framing and Retirement Age: The Gap between Willingness-to-Accept and Willingness-to-Pay

Economic Policy, Vol. 32(92), pp. 757-809, 2017, DOI: org/10.1093/epolic/eix014

64th Panel Meeting of Economic Policy, October 2016

69 Pages Posted: 9 Apr 2014 Last revised: 29 Oct 2017

See all articles by Christoph Merkle

Christoph Merkle

Aarhus University

Philipp Schreiber

University of Mannheim - Finance Department

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: August 25, 2016

Abstract

In a large online experiment, we relate the retirement timing decision to the disparity between the willingness-to-accept (WTA) and the willingness-to-pay (WTP). In the WTP treatment, participants indicate the maximum amount of monthly benefits they are willing to give up in order to retire early. In the WTA treatment, the minimum increase of monthly payments in order to delay retirement is elicited. Our results reveal that the framing of the decision problem strongly influences participants' reservation price for early retirement. The willingness-to-accept for early retirement is more than twice as high as the corresponding willingness-to-pay. Using actual values from the German social security system as market prices, we demonstrate that the presentation in a WTA frame can induce early retirement. In this frame, the implicit probability of retiring early increases by 30 percentage points.We further show that the disparity between WTA and WTP is correlated with loss aversion. Repeating the analysis with data from a representative household survey (German SAVE panel), we find similar results.

Keywords: Retirement Decision, Willigness-to-pay, Willigness-to-accept, Social Security

JEL Classification: D03, D14, H55, J26

Suggested Citation

Merkle, Christoph and Schreiber, Philipp and Weber, Martin, Framing and Retirement Age: The Gap between Willingness-to-Accept and Willingness-to-Pay (August 25, 2016). Economic Policy, Vol. 32(92), pp. 757-809, 2017, DOI: org/10.1093/epolic/eix014, 64th Panel Meeting of Economic Policy, October 2016, Available at SSRN: https://ssrn.com/abstract=2421275 or http://dx.doi.org/10.2139/ssrn.2421275

Christoph Merkle

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

HOME PAGE: http://christophmerkle.github.io/

Philipp Schreiber (Contact Author)

University of Mannheim - Finance Department ( email )

L 9, 1-2
Mannheim, 68131
Germany
+49 621 181 1525 (Phone)
+49 621 181 1534 (Fax)

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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