Becker Friedman Institute

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Predicting Retirement Savings Using Survey Measures of Exponential-Growth Bias and Present Bias

In a nationally-representative sample, we predict retirement savings using survey- based elicitations of exponential-growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12 percent.

Authors: 
Gopi Shah Goda, Stanford University
Matthew Levy, London School of Economics
Colleen Flaherty Manchester, University of Minnesota, Carlson School of Management
Aaron Sojourner, University of Minnesota
Joshua Tasoff, Claremont Graduate University
Publication Date: 
August, 2018
Publication Status: 
Document Number: 
2018-059
File Description: 
First version, August 17, 2018