Three Essays On The Behavioural Economics Of Saving For Retirement
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Three Essays On The Behavioural Economics Of Saving For Retirement
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Author : Derek Robert James Messacar
language : en
Publisher:
Release Date : 2016
Three Essays On The Behavioural Economics Of Saving For Retirement written by Derek Robert James Messacar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This thesis comprises three chapters that investigate, from a behavioural economics perspective, how individuals prepare financially for retirement. In Chapter 1, I investigate whether a savings 'nudge' is a viable mechanism to help people overcome knowledge barriers associated with saving for retirement. Using administrative tax records from Canada, I begin by estimating whether a nudge in workplace pensions increases net savings or induces workers to reduce contributions in other accounts. I find that a $1 increase in employer contributions crowds out other savings by $0.50. Hence, a nudge raises savings on average but many workers actively respond to it, which leads me to consider underlying heterogeneity in more detail. Specifically, I examine the effects of education on savings adjustments to a nudge and savings behaviour, using compulsory schooling reforms for identification. I find that workers with low education save inadequately for retirement on their own but benefit from a nudge by remaining passive, whereas those with high education are forward-looking and respond to the distortion by re-optimizing savings across accounts. These results indicate that a nudge likely increases consumer welfare in practice. In Chapter 2, I analyze the welfare implications of savings nudges when agents face subjective uncertainty about how to prepare adequately for retirement, but can mitigate this risk through endogenous information acquisition. I show that whether an optimal nudge increases or decreases individuals' savings levels depends on whether they initially under- or over-save due to their subjective uncertainty. Moreover, policies targeting human capital formation are a viable substitute for nudging, a result that policy-makers should consider when deciding on socially efficient programs for encouraging individuals to save. In Chapter 3, I examine the effect of withholding taxes on pre-retirement withdrawals from retirement savings account. Specifically, I estimate the elasticity of withdrawals to the net-of-withholding tax rate to be 1.5 for prime-aged savers. This finding suggests withholding taxes discourage pre-retirement withdrawals, serving as a de facto savings commitment device. Hence, individuals sometimes struggle to save adequately for retirement for reasons that are not well-explained by rational agency. I show that theories of present-biased preferences provide a better explanation.
Three Essays On Development Economics And Behavioral Economics
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Author : Changcheng Song
language : en
Publisher:
Release Date : 2012
Three Essays On Development Economics And Behavioral Economics written by Changcheng Song and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
This dissertation studies retirement savings, weather insurance take-up and reference-dependent theory in the literature of development economics and behavioral economics. It consists of two field experiments and one laboratory experiment. In Chapter one, I uses a field experiment to study the relationship between financial literacy and retirement savings in China. When the Chinese government launched a highly subsidized pension system in rural areas in 2009, 73% of households chose to save at a level that is lower than that implied by a benchmark life-cycle model. We test to what extent the low contribution level is due to a fundamental misunderstanding of the nature of compound interest. In a field experiment with more than 1000 Chinese households, we randomly assigned some households to a financial education treatment, emphasizing the concept of compound interest. This treatment increased the pension contribution by roughly 40%. The increase accounts for 51% of the gap between contribution levels in the Control group and those implied by the benchmark model. To pinpoint mechanisms, we elicited financial literacy after the intervention, and added a third group in which we explain the pension benefit in general. We find that the neglect of compound interest is correlated with low contributions to the pension plans in the control group, and that financial education about compound interest does help households partially correct their erroneous understanding of compound interest. Moreover, explaining compound interest increases their ability to translate benefits into their own situation. Welfare analysis suggests that financial education increases total welfare, although the fact that the treatment effects are heterogeneous implies that some households end up saving more than the level implied by the benchmark model. In Chapter two (coauthored with Jing Cai), we use a novel experimental design to test the role of experience and information in insurance take-up in rural China, where weather insurance is a new and highly subsidized product. We randomly selected a group of poor households to play insurance games and find that it increases the actual insurance take-up by roughly 48%. To pinpoint mechanisms, we test whether the result is due to: (1) changes in risk attitudes, (2) changes in the perceived probability of future disasters, (3) learning the objective benefits of insurance, or (4) the experience of hypothetical disaster. We show that the overall effect is unlikely to be fully explained by mechanisms (1) to (3), and that the experience acquired in playing the insurance game matters. To explain these findings, we develop a descriptive model in which agents give less weight to disasters and benefits which they experienced infrequently. Our estimation also suggests that experience acquired in the recent insurance game has a stronger effect on the actual insurance take-up than that of real disasters in the previous year, implying that learning from experience displays a strong recency effect. In Chapter three, I conducted a controlled lab experiment to test to what extent expectations and the status quo determine the reference point. In the experiment, I explicitly manipulated stochastic expectations and exogenously varied expectations in different groups. In addition, I exogenously varied the time of receiving new information and tested whether individuals adjust their reference points to new information, and the speed of the adjustment. With this design, I jointly estimated the reference points and the preferences based on the reference points. I find that both expectations and the status quo influence the reference point but that expectations play a more important role. Structural estimation suggests that the model of the stochastic reference point fits my data better than that with expected utility certainty equivalent as the reference point. The result also suggests that subjects adjust reference points quickly, which further confirms the role of expectation as reference point.
Three Essays On The Economics Of Mandatory Private Retirement Saving
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Author : Hazel Bateman
language : en
Publisher:
Release Date : 1997
Three Essays On The Economics Of Mandatory Private Retirement Saving written by Hazel Bateman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Pension trusts categories.
Three Essays On Retirement And Savings Behaviour
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Author : Bernardo F. Nunes
language : en
Publisher:
Release Date : 2016
Three Essays On Retirement And Savings Behaviour written by Bernardo F. Nunes and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Three Essays In Public Economics
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Author :
language : en
Publisher:
Release Date : 2013
Three Essays In Public Economics written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
The first and second chapters of this dissertation consider household financial decision making. In the first chapter I examine the phenomenon of early claiming for Social Security retirement benefits. Previous work has shown that early claiming, in particular by the primary earner in married couples, is not consistent with household benefit maximization nor is it predicted by models of utility maximization. I show that observed claiming behavior is explained well by a model in which the primary earner chooses when to claim without taking into consideration the effect of the choice on the secondary earner's spousal and survivor benefits. I find that the decrease in the value of household benefits due to early claiming is borne almost entirely by the surviving spouse. In the second chapter, with John Karl Scholz and Ananth Seshadri, we use the insight of a lifecycle model to better understand the factors that affect household retirement savings targets. Two of the most important determinants of savings targets are households' location in the lifetime income distribution and number of children. We measure the deviation of a set of financial guidelines for retirement saving from the optimal asset accumulation implied by the lifecycle model and suggest an alternate savings heuristic that takes into account insights from the lifecycle model. The third chapter applies a novel estimation strategy to measure the benefit of hazardous waste site remediation. In contrast to previous estimates, this method calculates the benefit of site remediation allowing for diminishing marginal utility. Using data on home sales in Cincinnati, Ohio in 2000 I find the median willingness to pay for a one mile increase to the nearest hazardous waste site is $228 per year. This is lower than previous estimates which range from $284 to $1,065 per year.
Essays On Public Policy And Financial Economics From A Macroeconomics Perspective
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Author : Dung Nguyen
language : en
Publisher:
Release Date : 2012
Essays On Public Policy And Financial Economics From A Macroeconomics Perspective written by Dung Nguyen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Economics categories.
ABSTRACT: This dissertation consists of three essays. The first two essays (i.e., Chapter 2 and Chapter 3) examine the effects of raising the retirement age on the life cycle behaviors of individuals and its implication on the social security budget. The third essay (i.e., Chapter 4) is an empirical study, which tests the hypothesis of investors' overreactions when trading neglected stocks. The first essay examines the impact of raising the retirement age on the saving and working behaviors of older individuals, and the associated impact on the social security budget. Its results indicate that the reform would result in a 50% reduction in the social security budget deficit. In terms of behavioral responses, we find that: (1) individuals respond to the reform by saving more progressively during the period prior to retirement (i.e., from their early 40s to age 62), while supplying more working hours during the retirement period (i.e., ages 62 and older). The intensity of the saving and working hour responses critically depend on the assumption of the efficiency indexes of the elderly- the lower (higher) the efficiency index, the more intense the saving (working hours) response; (2) there is an upward shift in the working hour profile of individuals as a result of raising the retirement age. Once again, the distance of the shift increases with values of the elderly efficiency index; (3) we find a decrease in the participation rate of elderly individuals age 62-80 in versions where the estimated efficiency index of the elderly is relatively low. The second essay focuses on examining the life-cycle behavior responses of individuals with different skill levels to the raising of the retirement age reform. We find that individuals with different educational attainment respond differently to the reform. Specifically, individuals with lower-than-average education respond to the policy change with a significant upward shift in the working hour profile, a higher participation rate, and an aggressive retirement saving motive. On the other hand, individuals with higher-than-average education mainly deal with the policy change by a higher saving rate and/or a lower rate of decumulating their assets in the retirement period. More importantly, the participation rate in the retirement period among these individuals is actually lower than before the policy change. Secondly, our findings suggest that disadvantaged individuals (e.g., those with a low education level) are the ones who are heavily affected by the policy reform in terms of a bigger consumption reduction, a more intense labor supply response, and a higher contribution to the social security budget. Finally, we find a small increase in the average labor productivity associated with the policy change. However, by educational attainment, we find evidence which suggests a decrease in labor productivity among individuals with below-average educational attainment (i.e., those with a high school degree or lesser), and an increase in labor productivity among those with above-average educational attainment (i.e., those with a college degree or higher). The third essay is an empirical study, which tests the hypothesis of investors' overreaction when trading stocks with limited information, such as neglected stocks. Specifically, we design a fundamental scoring method (called NSCORE) and apply it to the neglected stock universe. We also apply this method to the most-watched stock universe (called WSCORE). Our results show that the annualized returns of a monthly-rebalancing investment strategy which buys the top 100 NSCORE and sells the bottom 100 NSCORE is 26.31% for the period from the beginning of 1985 to the end of 2009. By contrast, when applying the same screening method to the most-watched stocks universe during the same time period, the annualized returns of the same investment strategy dropped to about half. This evidence clearly demonstrates the effectiveness of using financial statement data to identify winners and losers among neglected stocks as a result of investors' overreaction. We also find that the returns difference between top and bottom neglected stocks tends to persist for a long time. Specifically, the return difference between the top 100 NSCORE and the bottom 100 NSCORE can last up to 36 months (3 years). On the other hand, the returns difference among most watched-stocks tends to generally disappear after 12 months (1 year). Our comprehensive sensitivity tests confirm that our findings are not subject to well-known anomalies such as the size, book-to-market, and illiquidity effects.
Three Essays On Retirement Wealth
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Author : Lina Walker
language : en
Publisher:
Release Date : 2005
Three Essays On Retirement Wealth written by Lina Walker and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
Save More Tomorrow
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Author : Shlomo Benartzi
language : en
Publisher: Penguin
Release Date : 2012-04-12
Save More Tomorrow written by Shlomo Benartzi and has been published by Penguin this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-04-12 with Business & Economics categories.
One of the world’s top experts in behavioral finance offers innovative strategies for improving 401(k) plans. Half of Americans do not have access to a retirement saving plan at their workplace. Of those who do about a third fail to join. And those who do join tend to save too little and often make unwise investment decisions. In short, the 401(k) world is in crisis, and workers need help. Save More Tomorrow provides that help by focusing on the behavioral challenges that led to this crisis inertia, limited self-control, loss aversion, and myopia—and transforms them into behavioral solutions. These solutions, or tools, are based on cutting edge behavioral finance research and they can dramatically improve outcomes by, for example, helping employees: -Save, even if they aren’t ready to do so now, by using future enrollment. -Save more by showing them images of their future selves. -Save smarter by reshuffling the order of funds on the investment menu. Save More Tomorrow is the first comprehensive application of behavioral finance to improve retirement outcomes. It also makes it easy for plan sponsors and their advisers to apply these behavioral tools using its innovative Behavioral Audit process.
Three Essays On Expectations
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Author : Michael M. Perry
language : en
Publisher:
Release Date : 2007
Three Essays On Expectations written by Michael M. Perry and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
Essays In Behavioral Economics
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Author : Botond Kőszegi
language : en
Publisher:
Release Date : 2000
Essays In Behavioral Economics written by Botond Kőszegi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.