How Real People Make Long-Term Decisions

The Case of Retirement Preparation

J. Binswanger, K.G. Carman

Research output: Working paperDiscussion paperOther research output

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Abstract

A canonical but untested assumption in economics is that choices are determined only by preferences and budget constraints, but not by how people approach decision making. In particular, it is believed that people behave “as if they optimized”, even if they do not engage in any formal planning. We test this empirically in the domain of retirement saving using a specifically designed survey. We find that people who rely on a rule of thumb indeed behave like literal planners/optimizers. However, people without any systematic approach save substantially less. We discuss the implications of this finding.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages30
Volume2009-73
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-73

Fingerprint

Retirement
Preparation
Retirement saving
Rules of thumb
Economics
Decision making
Budget constraint
Planning

Keywords

  • Decision process
  • planning
  • rule of thumb
  • retirement saving
  • household finance

Cite this

Binswanger, J., & Carman, K. G. (2009). How Real People Make Long-Term Decisions: The Case of Retirement Preparation. (CentER Discussion Paper; Vol. 2009-73). Tilburg: Macroeconomics.
Binswanger, J. ; Carman, K.G. / How Real People Make Long-Term Decisions : The Case of Retirement Preparation. Tilburg : Macroeconomics, 2009. (CentER Discussion Paper).
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Binswanger, J & Carman, KG 2009 'How Real People Make Long-Term Decisions: The Case of Retirement Preparation' CentER Discussion Paper, vol. 2009-73, Macroeconomics, Tilburg.

How Real People Make Long-Term Decisions : The Case of Retirement Preparation. / Binswanger, J.; Carman, K.G.

Tilburg : Macroeconomics, 2009. (CentER Discussion Paper; Vol. 2009-73).

Research output: Working paperDiscussion paperOther research output

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N2 - A canonical but untested assumption in economics is that choices are determined only by preferences and budget constraints, but not by how people approach decision making. In particular, it is believed that people behave “as if they optimized”, even if they do not engage in any formal planning. We test this empirically in the domain of retirement saving using a specifically designed survey. We find that people who rely on a rule of thumb indeed behave like literal planners/optimizers. However, people without any systematic approach save substantially less. We discuss the implications of this finding.

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Binswanger J, Carman KG. How Real People Make Long-Term Decisions: The Case of Retirement Preparation. Tilburg: Macroeconomics. 2009. (CentER Discussion Paper).