Predicting Retirement Savings Using Survey Measures of Exponential-Growth Bias and Present Bias

65 Pages Posted: 17 Sep 2018

See all articles by Gopi Shah Goda

Gopi Shah Goda

Stanford University

Matthew Levy

London School of Economics & Political Science (LSE) - Department of Economics

Colleen Flaherty Manchester

University of Minnesota

Aaron Sojourner

University of Minnesota; IZA Institute of Labor Economics

Joshua Tasoff

Claremont Colleges - Claremont Graduate University

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 percent.

Keywords: household finance, retirement savings, exponential-growth bias, quasi-hyperbolic discounting, present bias, financial literacy, survey-based elicitations

JEL Classification: D91, J26, D14, D15

Suggested Citation

Goda, Gopi Shah and Levy, Matthew and Manchester, Colleen Flaherty and Sojourner, Aaron J. and Tasoff, Joshua, Predicting Retirement Savings Using Survey Measures of Exponential-Growth Bias and Present Bias. IZA Discussion Paper No. 11762. Available at SSRN: https://ssrn.com/abstract=3249876

Gopi Shah Goda (Contact Author)

Stanford University ( email )

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

Matthew Levy

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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

Joshua Tasoff

Claremont Colleges - Claremont Graduate University ( email )

150 E. Tenth Street
Claremont, CA 91711
United States

HOME PAGE: http://sites.cgu.edu/tasoffj/

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