Olivia S. Mitchell, Stephen P. Utkus's Pension Design and Structure: New Lessons from Behavioral PDF

By Olivia S. Mitchell, Stephen P. Utkus

Staff are being given an increasing number of judgements to make almost about their pension and healthcare plans. but expanding examine within the social sciences indicates that the choices 'real' humans make usually are not these of the considerate and well-informed monetary agent usually portrayed in financial study, yet are frequently in accordance with improper details and made and not using a complete realizing in their monetary implications. The members to Pension layout and constitution discover the assumptions at the back of commonly-held theories of retirement decision-making, and the implications of the becoming quantity of study in behavioral finance and economics for the sector of pension examine. utilizing huge datasets newly supplied by means of monetary carrier organisations and real-world experiments, this quantity assessments the hypotheses of this research.This is the 1st e-book to discover the consequences of behavioral finance learn for pensions and retirement experiences, and makes use of frontier examine from numerous fields, together with Finance, Economics, administration, Sociology, and Psychology. individuals comprise top pensions specialists.

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For instance, in several striking experiments and case studies, they conclude that people with virtually identical demographic characteristics can have dramatically different saving rates, depending on whether their peers save for retirement. They also demonstrate that communications directed to an individual can influence not only the individual’s savings behavior, but also the behavior of others in his or her work group. Automatic Saving Plans: Save More Tomorrow Such behavioral insights into saving behavior have been illustrated in an interesting way in the Save More Tomorrow (or SMT) program developed by Benartzi and Thaler (forthcoming).

After noting these, we turn to several plan design and policy responses to this new body of research. 1. One lesson is that behavioral research challenges some of the most central assumptions of decisionmaking. In particular, it challenges the notion that workers are rational, autonomous, microcalculators who exercise independent and unbiased judgment when it comes to their workplace retirement plans. The evidence suggests that people do strive to maximize their selfinterest, but for a variety of reasons outlined here, they often fail to act in accordance with the expectations of rational economic and financial theory, in both the accumulation and decumulation phases.

A second issue is that many people appear to be subject to what has been called an “availability heuristic”: When faced with difficult decisions, they tend to rely on readily available information. A simple reason that investors may rely on past performance could be because that information is cheaply available. As any plan participant knows, retirement plans and investment companies generate prodigious amounts of past performance data which they make available in statements, on websites, in enrollment materials, and in newsletter updates.

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