You are here

Decision Science News

June 7, 2010

Professor Eric Johnson Featured in The New York Times

Professor Eric Johnson's ideas for improving retirement income are featured in this New York Times article.

Topics: Marketing

 

Employees have increasingly been forced over the last few decades to take responsibility for ensuring they have enough savings to last through retirement. But many of them are making inadequate saving decisions and finding themselves facing financial difficulty in retirement.

As a result, the Department of Labor and the Department of the Treasury are reviewing retirement plan rules to determine if the retirement security of participants could be enhanced with arrangements aimed at providing a lifetime stream of income after retirement. Earlier this year, the agencies put out a request for comments on the topic from the retirement plan industry and the general public.

In drafting its response, a financial services provider, Allianz Global Investors, with the help of Shlomo Benartzi, a behavioral finance professor at the University of California-Los Angeles, reached out to academics in the behavioral science field and asked each one for a “key insight” that they believed would be most helpful in creating policies and solutions to  the issue. In its response, released earlier this week, Allianz presented the insights of the 10 academics and compiled their findings into a checklist that could be used by policy makers.

“These insights can add a human dimension to the design of a retirement system, helping to prevent ‘behavioral blind spots’ that could dramatically compromise it,” Mr. Benartzi wrote in the report. “At a time when individuals are asked to assume more responsibility for their retirement savings, we believe the human element is a critical determinative factor.”

So what are some of the main ideas? Here’s a look at a few we found interesting. Check out the response and let us know in the comments below which idea you find most interesting and why.

Seeing Your Future Self: Daniel G. Goldstein, an assistant professor of marketing at London Business School and a research scientist at Yahoo Research, is exploring how new virtual reality technologies can be used to create future images of a person and how seeing those images could influence a person’s financial decisions. According to the Allianz response, the preliminary findings of Professor Goldstein and his fellow researchers suggest that seeing a digital future representation of one’s self leads to allocating more money toward retirement. The researchers have started testing a Web-based tool where the facial expressions of future age-morphed selves change based on a selected savings rate. How could this research be incorporated into solutions to address retirement savings problems? Here’s how it’s presented in the checklist for policy makers: Are the implications of today’s financial decisions vividly presented so employees see how their lives will be affected?

Addressing Retirees’ Hypersensitivity to Loss: Researchers have shown that investors experience the pain of financial loss more than the pleasure of financial gain. Eric Johnson, a professor of marketing at Columbia Business School, has found that for retirees, the stronger reaction to loss is even more acute. But at the same time, he has found that retirees respond less favorably to financial products with more protection and guarantees. The professor’s explanation for this apparent contradiction is that retirees actually view giving up control of their money — and giving up the ability to withdraw money when they want it — as another type of loss. This means that products with guarantees and protection could be positioned as a way to gain control of finance and spending and policy makers should consider if a proposed solution is appropriate for retirees who are hypersensitive to losses.

Tangible Mental Accounts: Researchers have also shown that people tend to divide their money into separate mental accounts for various purposes (think travel or dining out) and that earmarking savings to specific goals (college savings, for instance) tends to increase saving rates. George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, has proposed applying these concepts to retirement. The idea would be that retirees have separate accounts for various purposes and use different investment strategies with different levels of risk for each. For policy makers, the idea would be to ask whether the retirement income strategy offers “multiple accounts to facilitate different goals, such as paying the rent or spending money on vacations.”

 

Join the Mailing List

Keep up with the latest decision science news by joining our mailing list.

SIGN UP NOW >

Participate in Online Studies

The center is continually recruiting people to participate in online studies.

Sign Up Online >

The Curl Ideas to wrap your mind around

Insights Gained

In his new book, Mark Broadie illustrates the value of developing a fresh approach to a pursuit mired in tradition, and brings analytics to golf.

Read More >

Katherine Phillips Named Senior Vice Dean

Effective July 1, 2014, Phillips will succeed Gita Johar, the Meyer Feldberg Professor of Business, whose three-year term as senior vice dean is ending.

Read More >

Financing China’s Future

China’s rapid urbanization strategy requires a financing system that can keep up. Shusong Ba of the State Council of China lays out economic and policy reforms that will help local governments cope with cities bursting at the seams.

Read More >

Event Connects Endowed Professors, Alumni

More than 60 distinguished Columbia Business School alumni, faculty, and staff members gathered at New York’s Le Parker Meridien hotel in Midtown for the School’s biennial Professorship Celebration on March 24. The event connects alumni who have supported endowed professorships and the professors who hold those chairs.

Read More >

Columbia Business School Community Gives Back to Local Community Through Inaugural Day of Impact

Students, faculty, and staff showcase their passion for making a difference outside the classroom through ten community service projects throughout New York City

Read More >

One Europe, One Banking System

Could it happen? What are the benefits and obstacles? Two prominent Euro economists go head-to-head.

Read More >

Eyeballing the Experts

What can umpires’ mistakes tell us about how status and reputation influence decision making?

Read More >

Social Savers

Peer monitors can help the poorest of the poor increase their wealth.

Read More >

New Research Proves Gender Bias Extraordinarily Prevalent in Stem Careers

Columbia Business School experiments show that hiring managers chose men twice as often for careers in science, technology, engineering and math

Read More >

Latest News

Find out about our upcoming events in our weekly Center for Decision Sciences newsletter.

Read the Newsletter >