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What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving

Author

Listed:
  • Gopi Shah Goda
  • Colleen Flaherty Manchester
  • Aaron Sojourner
Abstract
Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrollment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response.

Suggested Citation

  • Gopi Shah Goda & Colleen Flaherty Manchester & Aaron Sojourner, 2012. "What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving," NBER Working Papers 17927, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17927
    Note: AG PE
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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