Risk Management for the Future: Age, Risk, and Choice Architecture

How can regulation in an era of personal responsibility aid people to make the optimal decisions about their future risks, savings, and retirement? This study aims to deepen our understanding of how different age groups process choices in relation to future risk and retirement planning in diverse decision-making environments. In a series of experiments, we examine how age and the life cycle interact with the decision-making environment concerning savings, retirement and well-being. Across multiple experiments we find that when cognitive resources are available older participants opt for more prudent and future oriented financial and retirement choices, but that this pattern does not hold in situations that do not allow the luxury of executive control override. Moreover, in some instances, we find an increased effect of resource depletion for older compared to younger participants. At a theoretical level our findings suggest that much of the difference in financial choices between older and younger decision makers rests in the ability of each age group to override their intuitive and automatic responses to such decisions. At the policy level, as the regulatory field is moving from command-and-control rules to the provision of menu options and choice architecture, our findings provide potential guidelines for better designing retirement and savings plans, such as the implementation of SMT-style programs and the encouragement of annuity over lump sum retirement benefits.