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:
– Subjective measures and portfolio choice
• Experiments over the Internet:
– Roybal center for financial decision making
– Measurement
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Saving and Social Security Expectations
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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 accumulation but
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
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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
Replacement
rate
Generalized
replacement
rate
Difference
United States
75.7
111.4
35.7
Italy
85.9
124.5
38.6
102.3
114.5
12.2
Netherlands
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Subjective Measures and Portfolio Choice
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Barsky et al. (cont.)
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The Respondents’ Decision Tree
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Simpler Questions
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Simpler Yet
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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.
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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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