We analyze a panel of over 28,400 S&P 500 return forecasts by CFOs to examine whether the extent of CFOs' miscalibration-providing forecast confidence intervals that are too narrow-decreases over time. We find no improvement with task repetition nor evidence of learning, that is, no improvement in response to past performance. Across CFOs, miscalibration appears to be a persistent personal trait. We find some evidence that the degree of miscalibration is related to birth cohort and stock market familiarity.

One approach to cognition that has attracted wide interest in psychology is information processing theory (c.f. Newell & Simon, 1972). A specific focus of the information processing approach has been the study of human problem solving. Information processing models of problem solving describe behavior in terms of the interaction between the individual's cognitive system, the task environment as defined by the researcher, and a third component, the problem space. This last component of information processing models refers to the internal representation of the task environment used by a particular subject. Although the problem space will be related to the task environment as defined by the researcher, Simon (1978) stresses that a subject's particular problem space "must be distinguished from the task environment [p. 275]." Once a problem representation has been constructed, it will profoundly affect the subsequent performance of the problem solver.

For many Americans the question of when to claim Social Security benefits is one of the most consequential financial decisions they will ever face.While acknowledging that individuals differ in terms of optimal timing for starting Social Security benefits, many economists argue that an average person would benefit from delaying claiming as long as they could.Yet this is not what average Americans do.Many more Americans claim as soon as possible, at age 62, rather than as late as possible, at age 70.Why?This paper focuses on individual differences in beliefs and values that influence Social Security claiming intentions.As expected from economic theory, individual differences in life expectations and degree of patience for later larger payouts relate to claiming intentions.In addition, however, we also find that individual differences in psychological ownership of one's Social Security benefits and individual differences in degree of loss aversion are both significant predictors of Social Security claiming intentions.Further, we find that an "enriched" information display manipulation (nudge) that emphasizes longer-term consequences of late claiming leads to earlier, not later, claiming intentions, and that the size of this effect is related to individual differences in the degree of loss aversion.

Download This Paper Open PDF in Browser Add Paper to My Library Share: Permalink Using these links will ensure access to this page indefinitely Copy URL Copy DOI

Life annuities can be a valuable component of the decumulation stage of wealth during retirement.While economists argue that most retirees should annuitize, actual demand in the marketplace is low.We analyze data from two studies to determine how measurable individual differences among consumers affect their interest in annuities.We find that a relatively high percentage of respondents dislike all annuities.Demographic factors are not predictive of which individuals dislike annuities, and individual factors predicted by economic models to be important (such as beneficiaries) have small or even opposite effects.The strongest individual differences we measured that predicts liking of annuities is the respondent's perception of product fairness.We discuss implications of our findings for financial planners hoping to help their customers with these decumulation challenges.

Decumulation of wealth in retirement is a difficult task, requiring tradeoffs between longevity risks and immediate consumption needs. Economists have long argued that life annuities can be a valuable part of decumulation and that most retirees should annuitize, and yet actual market demand is quite low–the so‐called “annuity puzzle.” We analyze data from two studies to understand how measurable individual differences predict interest in annuities. In our data, a relatively high percentage of respondents dislike all annuities; demographic measures are not predictive of which individuals never choose annuities, and individual factors (such as beneficiaries) favored by economic models have small or even opposite effects. We find that the strongest individual differences predictive of liking of annuities are the respondent's perception of product fairness. We discuss implications of our findings for financial planners hoping to help customers with their decumulation challenges.

This chapter provides a valuable overview of concepts and findings from behavioral decision theory and of their applicability to an understanding of criminal decision making. The decision to commit a crime is the first behavior of direct relevance to the functioning of the criminal justice system. The idea that human information-processing limitations place constraints on decision processes is referred to as the concept of bounded rationality. The human decision maker is a limited information processor who has many different simplifying strategies for making choices. The expected utility model has been used to predict and explain decisions in a wide variety of domains ranging from decisions about births to national security policies. Adoption of the expected utility model for offender decisions has a number of important implications for the criminal justice system. A central tenet of information-processing theory is that the internal representations constructed by the decision maker drive behaviors such as choice and problem solving.

Mortgage decisions have important consequences for consumers, lenders, and the state of the economy more generally. Mortgage decisions are also prototypical of consumer financial choices that involve a stream of expenditures and consumption occurring across time. The authors use heterogeneity in time preferences for both immediate (present bias) and long-term outcomes to explain a sequence of mortgage decisions, including mortgage choice and the decision to abandon a mortgage. The authors employ an analytic model and a survey of mortgaged households augmented by zip code–level house price and foreclosure data. The model suggests and data confirm that consumers with greater present bias and long-term discounting tend to choose mortgages that minimize up-front costs. However, greater present bias decreases homeowners' willingness to abandon a mortgage, locking them into the contract. Long-term patience increases mortgage abandonment. This reversal across mortgage decisions is difficult for alternative accounts to explain. These results suggest that a two-parameter model of time preferences is helpful for understanding how homeowners make mortgage decisions.

Decisions about life annuities are an important part of consumer decumulation of retirement assets, yet they are relatively underexplored by marketing researchers studying consumer financial decision making. In this article, the authors propose and estimate a model of individual preferences for life annuity attributes using a choice-based stated-preference survey. Annuities are presented in terms of consumer-relevant attributes such as monthly income, yearly adjustments, period certain guarantees, and company financial strength. The authors find that these attributes directly influence consumer preferences beyond their impact on the annuity's expected present value. The strength of the direct influence depends on how annuities are described: when annuities are represented only through basic attributes, consumers undervalue inflation protection, and preferences are not monotonically increasing in duration of period certain guarantees. When descriptions of annuities are enriched with cumulative payment information, consumers no longer undervalue inflation protection, but nonlinear preferences for period certain options remain. The authors find that among annuities with the same expected payout but different annual increases and period certain guarantees, the proportion of consumers who choose the annuity over self-management can vary by more than a factor of 2.

Adolescence is often viewed as a time of irrational, risky decision-making—despite adolescents' competence in other cognitive domains. In this study, we examined the strategies used by adolescents (N = 30) and young adults (N = 47) to resolve complex, multi-outcome economic gambles. Compared to adults, adolescents were more likely to make conservative, loss-minimizing choices consistent with economic models. Eye-tracking data showed that prior to decisions, adolescents acquired more information in a more thorough manner; that is, they engaged in a more analytic processing strategy indicative of trade-offs between decision variables. In contrast, young adults' decisions were more consistent with heuristics that simplified the decision problem, at the expense of analytic precision. Collectively, these results demonstrate a counter-intuitive developmental transition in economic decision making: adolescents' decisions are more consistent with rational-choice models, while young adults more readily engage task-appropriate heuristics.

Decades of research have yielded an array of debiasing strategies that can improve judgments and decisions across a wide range of settings in fields such as business, medicine, and policy. And, of course, debiasing strategies can improve our personal decisions as well. The purpose of this chapter is to provide a guide to these strategies. We begin with a brief discussion of the sources of bias in decision making. It helps to know how poor decisions arise in order to generate insights about how to improve them. This discussion is followed by a section on decision readiness which refers to whether an individual is in a position to make a good decision in a particular situation. Intense emotional states, fatigue, and poor decision-related skills (e.g., being innumerate) can all contribute to a lack of decision readiness. We then turn to a review of debiasing techniques, organized according to whether they modify the person or the environment. We close with a discussion of six considerations in choosing which debiasing method to apply.

This talk provides an overview of research that seeks to better understand the psychological processes underlying Social Security claiming decisions. The research shows that claiming decisions are affected by subjective judgments of life expectation as well as psychological measures of loss aversion, patience, and perceived ownership. Findings provide important insights for the design of interventions for optimal individual retirement decisions.

•People maximize the overall probability of winning when faced with complex gambles.•Information processing and choice differs across decision contexts.•Pre-decisional eye-tracking data predicts choice on individual decision problems.•Findings are more consistent with the use of multiple strategies in risky choice.

Frederick, Lee, and Baskin (2014) and Yang and Lynn (2014) argue that the conditions for obtaining the attraction effect are so restrictive that the practical validity of the attraction effect should be questioned. In this commentary, the authors first ground the attraction (asymmetric dominance) effect in its historical context as a test of an important theoretical assumption from rational choice theory. Drawing on the research reported by scholars from many fields of study, the authors argue that the finding of an asymmetric dominance effect remains robust because it holds when the conditions of the study are essentially replicated. Next, the authors identify some of the factors that mitigate (and amplify) the attraction effect and then position the effect into a larger theoretical debate involving the extent to which preferences are constructed versus merely revealed. The authors conclude by arguing that researchers who try to measure values as well as choice architects who attempt to shape values must be sensitive to the context-dependent properties of choice behavior, as illustrated by the attraction effect.