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Economic Rationality, Risk Presentation, and Retirement Portfolio Choice

Elderly couple researching pension options

Hazel Bateman, Christine Ebling, John Geweke, Jordan Louviere, Stephen Satchell, Susan Thorp

This research studies the propensity of individuals to violate implications of expected utility maximization in allocating retirement savings within a compulsory defined contribution retirement plan. The paper develops the implications and describes the construction and administration of a discrete choice experiment to almost 1200 members of Australia's mandatory retirement savings scheme.

The experiment finds overall rates of violation of roughly 25%, and substantial variation in rates, depending on the presentation of investment risk and the characteristics of the participants.

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