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Discounting, Cognition, And Financial Awareness: New Evidence From A Change In The Military Retirement System

Author

Listed:
  • Curtis J. Simon
  • John T. Warner
  • Saul Pleeter

Abstract

The choice given military personnel between an immediate cash payment of $30,000 or a more generous retirement pension permits us to estimate individuals' personal discount rates (PDRs). The resulting PDRs, about 7% for enlisted personnel and 2%–4.3% for officers, are precise and are correlated with a variety of other financial behaviors. The PDR is negatively related to educational attainment and the Armed Forces Qualification Test, but cognition seems to operate through channels other than being better informed; better‐informed individuals were not always measured to be more patient. (JEL D91, D14)

Suggested Citation

  • Curtis J. Simon & John T. Warner & Saul Pleeter, 2015. "Discounting, Cognition, And Financial Awareness: New Evidence From A Change In The Military Retirement System," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 318-334, January.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:318-334
    DOI: 10.1111/ecin.12146
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    Cited by:

    1. Borissov, K. & Pakhnin, M., 2018. "A Division of Society into the Rich and the Poor: Some Approaches to Modeling," Journal of the New Economic Association, New Economic Association, vol. 40(4), pages 32-59.
    2. Matteo Migheli & Flavia Coda Moscarola, 2017. "Gender Differences in Financial Education: Evidence from Primary School," De Economist, Springer, vol. 165(3), pages 321-347, September.
    3. Sahari, Anna, 2021. "Household heterogeneity in valuation of heating energy costs," Working Papers 141, VATT Institute for Economic Research.
    4. Robert Clark & Annamaria Lusardi & Olivia S. Mitchell, 2017. "Employee Financial Literacy And Retirement Plan Behavior: A Case Study," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 248-259, January.
    5. Sahari, Anna, 2019. "Electricity prices and consumers’ long-term technology choices: Evidence from heating investments," European Economic Review, Elsevier, vol. 114(C), pages 19-53.
    6. Theisen, Theis, 2020. "The impact of an urban toll ring on housing prices," Research in Transportation Economics, Elsevier, vol. 82(C).
    7. Jason S. Scott & John B. Shoven & Sita N. Slavov & John G. Watson, 2020. "Can Low Retirement Savings Be Rationalized?," NBER Working Papers 26784, National Bureau of Economic Research, Inc.
    8. Patrick Bell & Rozlyn Engel & Darren Hudson & Julian Jamison & William Skimmyhorn, 2018. "Risk preferences in future military leaders," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 2(2), pages 11-24, September.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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