Can Estimated Risk and Time Preferences Explain Real-life Financial Choices?

We combine experimentally elicited preferences with administrative micro data to study actual financial decision-making. Firstly, we simultaneously elicit and estimate risk and time preferences in a real-life context, with horizons up to 10 years, for more than 1000 pension fund participants. We estimate a present-bias factor of 0.84, an annual discount rate of 1.1%, and a CRRA utility curvature of 0.97. Secondly, using an expected utility framework, we show that the individually estimated preferences explain actual retirement decisions up to 82% of our sample for a utility indifference of at most 2% annual certainty equivalent consumption. Freedom of choice by means of a front-loaded annuity creates annual potential welfare gains up to 2.77%, but realized welfare gains are lower or even negative.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

MEER OVER NETSPAR


Missie en strategie           •           Netwerk           •           Organisatie           •          Magazine
Netspar Brief            •            Werkprogramma 2019-2023           •           Onderzoekagenda

OVER NETSPAR

Onze partners

B20160708_university of groningen
B20160615_pggmgroengrijs_grijswaarden_small
B20220518_BNP Paribas logo_voettekst
B20211201_Cardano_Logo 2021_website
B20160708_afm
Bekijk al onze partners