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Saving, Portfolio Choice, Institutions, Experiments

Saving, Portfolio Choice, Institutions, Experiments. Arie Kapteyn, RAND. How to Learn About Financial Behavior?. Variations in institutions (natural experiments): Saving and social security expectations Wealth at retirement and replacement rates Ask people:

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Saving, Portfolio Choice, Institutions, Experiments

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  1. Saving, Portfolio Choice, Institutions, Experiments Arie Kapteyn, RAND

  2. How to Learn About Financial Behavior? • Variations in institutions (natural experiments): • Saving and social security expectations • Wealth at retirement and replacement rates • Ask people: • Subjective measures and portfolio choice • Experiments over the Internet: • Roybal center for financial decision making • Measurement

  3. Saving and Social Security Expectations

  4. Saving and Social Security Expectations • Kapteyn, Alessie, Lusardi (2005): "Explaining the Wealth Holdings of Different Cohorts: Productivity Growth and Social Security", European Economic Review, vol. 49, 1361-1391. • Displacement effect of SS on wealth accumulationbut only about 10% of what a simple life cycle theory would predict4 • This may simply reflect that too many other things are going on, that we did not model adequately.9

  5. Wealth at Retirement and Replacement Rates Kapteyn and Panis (2005): “Institutions and Saving for retirement: Comparing the United States, Italy, and The Netherlands”, in D.A. Wise (ed.) Analyses in the Economics of Aging, University of Chicago Press, pp.281-312

  6. Subjective Measures and Portfolio Choice

  7. Barsky et al. (cont.)

  8. The Respondents’ Decision Tree

  9. Simpler Questions

  10. Simpler Yet

  11. Simple, but Not Too Simple • The “sophisticated” approach explains very little of observerd portfolio choice. • The “classical” approach of using a battery of questions and extracting underlying factors seems to be most powerful. • The simplest questions don’t do so bad either. • All of this in a rational model of portfolio choice.

  12. Experiments? • Potentially experiments can be very informative, but typically experimental subjects have been few and selective. The internet offers a plethora of new possibilities: • Focus groups on-line. • Chat boxes. • Let people invest; Vary information or presentation. • By the way, how well do we measure facts? Conversations tend to be confusing. • RAND Roybal Center for Financial Decision Making; 1500 households on line

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