How real people make long-term decisions

The case of retirement preparation

J. Binswanger, K.G. Carman

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Large variations in retirement wealth are common, with some households accumulating hundreds of thousands of dollars and others accumulating next to nothing. We examine to what extent formal planning or simple rules of thumb contribute to these differences in wealth accumulation. In particular, we investigate whether those who follow simple rules of thumb or those who come up with more complete plans accumulate more wealth than those who take an unsystematic approach. We test this empirically using a specifically designed survey about retirement preparation. We find that people who rely on a rule of thumb behave like literal planners. However, people without any systematic approach save substantially less. Our results, taken together with evidence from psychology, suggest that financial planning advice based on simple rules of thumb may be helpful for those who currently take no systematic approach.
Original languageEnglish
Pages (from-to)39-60
JournalJournal of Economic Behavior and Organization
Volume81
Issue number1
DOIs
Publication statusPublished - 2012

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Rules of thumb
Retirement
Preparation
Simple rules
Wealth
Psychology
Household
Wealth accumulation
Financial planning
Planning

Keywords

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

Cite this

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title = "How real people make long-term decisions: The case of retirement preparation",
abstract = "Large variations in retirement wealth are common, with some households accumulating hundreds of thousands of dollars and others accumulating next to nothing. We examine to what extent formal planning or simple rules of thumb contribute to these differences in wealth accumulation. In particular, we investigate whether those who follow simple rules of thumb or those who come up with more complete plans accumulate more wealth than those who take an unsystematic approach. We test this empirically using a specifically designed survey about retirement preparation. We find that people who rely on a rule of thumb behave like literal planners. However, people without any systematic approach save substantially less. Our results, taken together with evidence from psychology, suggest that financial planning advice based on simple rules of thumb may be helpful for those who currently take no systematic approach.",
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How real people make long-term decisions : The case of retirement preparation. / Binswanger, J.; Carman, K.G.

In: Journal of Economic Behavior and Organization, Vol. 81, No. 1, 2012, p. 39-60.

Research output: Contribution to journalArticleScientificpeer-review

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