Behavioral Finance and Saving: Determinants of Retirement Readiness

2018 TIAA Institute Fellows Symposium

The TIAA Institute and the Pension Research Council/Boettner Center at Wharton School of the University of Pennsylvania co-hosted a research forum that focused on retirement security and featured innovative research on retirement plan design, financial literacy, and other topics designed to increase financial well-being for U.S. workers and employers.

Date: June 18, 2018

Location: The Kimpton Hotel, Washington, D.C.

Featured Research

During the course of the day, we heard keynote addresses from thought leaders in retirement planning and research presentations on the following studies:


Effects of Positive Memory Retrieval on Intertemporal Choice in Older Adults

Speaker: Karolina Lempert, University of Pennsylvania

Key Findings:

■   People tend to prefer immediate payouts over delayed payouts, even when the delayed payout is much larger.

■   The rate at which people discount future rewards varies widely and may depend on context, but most people exhibit some degree of temporal discounting.

■   Steep temporal discounting is associated with smoking, gambling, excessive credit card borrowing and other risky behaviors.
Retrieving positive memories before making intertemporal choices does not appear to affect temporal discounting in cognitively normal older adults.

 

Memory Infographic

 

Household Investment Puzzles and Probability Weighting

Speaker: Olivia S. Mitchell, Wharton School, University of Pennsylvania and NBER,
TIAA Institute Fellow

Key Findings:
 
■    Probability weighting explains financial decisions that seemingly violate utility-maximizing behavior.

■    Most people overweight small probabilities and underweight higher probabilities to some degree.

■    Investors who overweight the probability of realizing extreme gains through equity exposure may prefer to hold a few individual stocks that could rise rapidly, versus investing in a broadly diversified portfolio.

■    Risk-averse investors who underweight the likelihood of generating moderate positive returns through equity investments might prefer to avoid stocks altogether.
Dimmock TI Report Image

 

Behavioral Factors and Long-Run Financial Well-Being

Speaker: Victor Stango, University of California, Davis
 
Key Findings:
 
■    Nearly everyone exhibits at least one behavioral indicator, and most people exhibit several.
 
■    Behavioral biases are distinct features of consumer decision-making, not proxies for unmeasured aspects of demographics or cognitive abilities.
 
■    Behavioral biases are correlated with financial well-being in ways predicted by theory and are not neutralized by market forces, learning or other factors.
Stango Report 2018 Inforgraphic