Can Estimated Risk and Time Preferences Explain Real-life Financial Choices?

We combine experimentally elicited preferences with administrative micro data to study actual financial decision-making. Firstly, we simultaneously elicit and estimate risk and time preferences in a real-life context, with horizons up to 10 years, for more than 1000 pension fund participants. We estimate a present-bias factor of 0.88, an annual discount rate of 3.91% and a CRRA utility curvature of 0.97. Secondly, using an expected utility framework, we show that the individually estimated preferences explain actual retirement decisions up to 82% of our sample for reasonable indifference intervals. Freedom of choice by means of a lumpsum-like annuity creates annual potential welfare gains up to 4.41%, but realized welfare gains are lower or even negative.