Pension Design and Structure New Lessons from Behavioral Finance

by Mitchell, Olivia S.; Utkus, Stephen P.

• ISBN13: 9780199273393
• ISBN10: 0199273391
• Format: Hardcover
• Copyright: 2004-09-30
• Publisher: Oxford University Press

Summary

Employees are being given more and more decisions to make with regards to their pension and healthcare plans. Yet increasing research in the social sciences shows that the decisions 'real' people make are not those of the thoughtful and well-informed economic agent often portrayed in economic research, but are often based on flawed information and made without a full understanding of their financial implications. The contributors to Pension Design and Structure explore the assumptions behind commonly-held theories of retirement decision-making, and the consequences of the growing volume of research in behavioral finance and economics for the field of pension research. Using large datasets newly provided by financial service firms and real-world experiments, this volume tests the hypotheses of this research. This is the first book to explore the implications of behavioral finance research for pensions and retirement studies, and uses frontier research from several fields, including Finance, Economics, Management, Sociology, and Psychology. Contributors include leading pensions experts.

Author Biography

Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor of Insurance and Risk Management, and Executive Director of the Pension Research Council at the Wharton School of the University of Pennsylvania, and also a Research Associate at the National Bureau of Economic Research. Her academic research explores private and publica insurance, risk management, public finance and labour markets, and compensation and pensions, with both a US and international focus. She recently served on President Bush's Commission to Strengthen Social Security. Stephen P. Utkus is the Director of the Vanguard Center for Retirement Research, where he conducts and sponsors research on retirement savings and retirement benefits. His current research interests include attitudes and expectations regarding retirement, financial markets, and employer-sponsored retirement plans; the psychological and behavioral aspects of participant decision-making; trading and investment behavior among retirement plan participants; fiduciary issues arising from retirement programs; and global trends in public and private pension plans. Mr. Utkus is a member of the advisory board of the Wharton Pension Research Council, and he is currently a Visiting Scholar at The Wharton School.

Table of Contents

List of Figures	ix
List of Tables	x
Notes on Contributors	xiii
Abbreviations	xix
Part I. Research on Decisionmaking under Uncertainty
Lessons from Behavioral Finance for Retirement Plan Design	3	(40)
Olivia S. Mitchell
Stephen P. Utkus
Motivating Retirement Planning: Problems and Solutions	43	(10)
Gary W. Selnow
Who's Afraid of a Poor Old Age? Risk Perception in Risk Management Decisions	53	(14)
Elke U. Weber
Behavioral Portfolios: Hope for Riches and Protection from Poverty	67	(16)
Meir Statman
Part II. Implications for Retirement Plan Design
How Much Choice is Too Much? Contributions to 401(k) Retirement Plans	83	(14)
Sheena Sethi-Iyengar
Gur Huberman
Wei Jiang
``Money Attitudes'' and Retirement Plan Design: One Size Does Not Fit All	97	(24)
Donna M. MacFarland
Carolyn D. Marconi
Stephen P. Utkus
Employee Investment Decisions about Company Stock	121	(16)
James J. Choi
David Laibson
Brigitte Madrian
Andrew Metrick
Implications of Pension Plan Features, Information, and Social Interactions for Retirement Saving Decisions	137	(20)
Esther Duflo
Emmanuel Saez
Part III. Consequences for Retirement Education
Saving and the Effectiveness of Financial Education	157	(28)
Annamaria Lusardi
Sex Differences, Financial Education, and Retirement Goals	185	(22)
Robert L. Clark
Madeleine B. d'Ambrosio
Ann A. McDermed
Kshama Sawant
Retirement Security in a DC World: Using Behavioral Finance to Bridge the Expertise Gap	207	(14)
Jason Scott
Gregory Stein
Adult Learning Principles and Pension Participant Behavior	221	(16)
Victor Saliterman
Barry G. Sheckley
Part IV. Implications for Retirement Payouts
How do Retirees Go from Stock to Flow?	237	(22)
John Ameriks
Annuities and Retirement Well-Being	259	(16)
Constanlijn W. A. Panis
Perceptions of Mortality Risk: Implications for Annuities	275	(12)
Matthew Drinkwater
Eric T. Sondergeld
Index	287