Afterlunch webinar – Yadi Yang – Discretionary Retirement Investment Decisions and Consumers’ Regulatory Focus: A Joint Model of How Much and How Risky to Invest

Retirement investments constitute a large part of many individuals’ financial capital. The increasing pressures on state pensions and employer-based pension funds require more and more individuals to also make additional retirement investments themselves. A key decision that they face when doing so, is how to allocate these discretionary investments across more versus less risky investment products. This paper investigates this investment allocation decision and how it is affected by individuals’ promotion versus prevention orientation. We propose a Multiple Discrete-Continuous Extreme Value (MDCEV) model to capture the mutual dependence between individuals’ choice of investment products and how much to invest in each product.

We also capture the impact of individuals’ promotion versus prevention orientation in the model by incorporating their general regulatory focus as well as their retirement investment-specific promotion versus prevention goals. Results from three studies amongst two representative samples of Dutch working individuals and one sample of U.S. working individuals support the proposed model with mutual dependence between investment product choice and investment amount allocation. They also support the proposed  theorizing for individuals’ retirement investment-specific promotion versus prevention goals but show no impact for their general promotion versus prevention orientation.