Individuals’ Decision for Discretionary Retirement Saving: A Joint Model of How Much and How to Invest
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SeriesPhD Lunch Seminars
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Speaker(s)Yadi Yang (ERIM, Erasmus University Rotterdam)
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FieldMarketing
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LocationErasmus University Rotterdam, Campus Woudestein, Mandeville T3-14
Rotterdam -
Date and time
June 22, 2022
12:00 - 13:00
Abstract
In pension
investment field, consumers often face two choices: the discrete choice of
which products to choose and the continuous choices of how much to invest in
them. A consumer makes both decisions jointly. Not modelling these two choices
in a mutually consistent manner might undermine estimation accuracy and
reliability, thus misleading the understanding and predictions of consumer
behavior. Previous research on pension portfolio allocation is limited and
relatively little is known about how individuals make discrete and continuous
decisions for retirement simultaneously. This paper contributes to the existing
literature by estimating how much and how to invest for retirement with
Multiple Discrete-Continuous Extreme Value (MDCEV) model, based on a
representative survey of 3, 200 U.S. residents. We also integrate three main
potential sources of heterogeneity into this model: 1. Socio-demographic
differences such as age, gender, and education level, 2. Differences in
individuals' regulatory focus, personal goals, and other personal traits with
respect to retirement, and 3. Contextual effects due to the framing of the retirement
savings message they receive. Our results confirm that individuals do make
discrete and continuous decisions simultaneously. Individual heterogeneity also
plays a role in financial decision making.