RETIREMENT PLANS: LEVERAGING BEHAVIORAL ECONOMICS & · PDF file RETIREMENT PLANS:...

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Transcript of RETIREMENT PLANS: LEVERAGING BEHAVIORAL ECONOMICS & · PDF file RETIREMENT PLANS:...

  • RETIREMENT PLANS:

    LEVERAGING BEHAVIORAL ECONOMICS

    & DATA ANALYTICS

    MAY 22, 2018 ACTUARIES’ CLUB OF HARTFORD & SPRINGFIELD

    AMANDA HUG, FSA, MAAA

    Actuary, MassMutual

    FELIX OKWANING, FSA, MAAA, EA, FCA

    VP & Consulting Actuary, Prudential

    ANDREW PORTER

    Director of Behavioral Finance, Merrill Lynch

  • AGENDA

    01

    02

    03

    04

    BEHAVIORAL ECONOMICS BASICS & INSIGHTS

    Amanda Hug

    BEHAVIORAL ECONOMICS APPLICATIONS

    Andrew Porter

    DATA ANALYTICS

    Felix Okwaning

  • WHAT IS BEHAVIORAL

    ECONOMICS?

    ECONOMICS PSYCHOLOGY

  • WHY THIS TOPIC?

  • “ECONS” Have the intelligence of Albert Einstein

    Have an endless memory bank

    Exhibit constant self-control

    “HUMANS” Have trouble calculating the restaurant tip

    Forget their anniversary

    Gouge themselves at the all-you-can-eat buffet

  • SYSTEMATIC BIASES

  • ANCHORING

    HOW LONG IS THE

    MISSISSIPPI RIVER? “ “

    RETIREMENT APPLICATION

    WHEN SUGGESTING DEFERRAL RATES,

    SUGGEST 5, 7, & 9% INSTEAD OF 3, 5, & 7%

  • LOSS AVERSION

    RETIREMENT APPLICATION

    MITIGATE THE FEELING OF LOSS BY SHOWING

    RETURNS OVER A LONGER TIME HORIZON

  • INVESTOR BEHAVIOR

    Source: DALBAR’s 23rd Annual Quantitative Analysis of Investor Behavior for period ended 12/30/2016

  • 40 YEARS IN THE S&P 500

    Source: S&P 500, Yahoo Finance

  • MENTAL ACCOUNTING

  • MENTAL ACCOUNTING

    RETIREMENT APPLICATION

    EMPLOYEES ARE LESS LIKELY TO SPEND MONEY

    THAT THEY HAVE EARMARKED TOWARDS RETIREMENT

  • 1986

    2010

    A DELUGE OF INFORMATION

  • A/B TESTING

    A B

  • FOLLOWING INSIGHTS FROM

    “THE SMARTER SCREEN”

    BY SHLOMO BENARTZI

  • INSIGHT 1:

    BEAUTY

    MATTERS

    $162

    $327

  • INSIGHT 2:

    POSITION

    MATTERS

  • INSIGHT 3:

    TIMING

    MATTERS

  • BEHAVIORAL ECONOMICS:

    PRACTICAL APPLICATIONS

    ANDREW PORTER

    Director of Behavioral Finance, Merrill Lynch

  • SAVE MORE TOMORROW™ Thaler & Benartzi, Journal of Political Economy, 2004, vol. 112

    Approach employees well in advance of a pay raise

    about increasing their contribution rates.

    Ask in advance

    Increase contribution rates in the first paycheck

    after a pay raise to avoid a loss in take-home pay.

    Timing Matters

    Increase contribution rates with each raise until

    reaching a preset maximum.

    Increase over time

    01

    02

    03

    Give employees the flexibility to own the decision

    and avoid feeling locked in.

    Allow opt out at any time

    04