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In particular, rather extreme discounting is thought to occur in situations in which immediate gains (as opposed to short-term gains) are traded off against long-term ones ( Chapman 1996 Frederick, Loewenstein, and O’Donoghue 2003 Laibson 1997 O’Donoghue and Rabin 1999). In the words of Federal Reserve chairman Ben Bernanke, “The arithmetic is, unfortunately, quite clear” ( Chan and Hernandez 2010): to avoid overwhelming budget cuts, saving behavior needs to change.ĭiscounting of the future was long described as exponential in economic models (e.g., Samuelson 1937), but recent behavioral research suggests that it is better fit by a hyperbolic or quasi-hyperbolic function in certain situations ( Kirby and Marakovic 1996 Laibson 1997 Laibson, Repetto, and Tobacman 1998 Strotz 1956 Zauberman, Kim, Malkoc, and Bettman 2009). Such a lack of preparedness is particularly problematic in the United States given the status of the already weakened social security system.
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Moreover, the McKinsey Global Institute (2008) observed that fully two-thirds of Early Baby Boomers (born between 19) do not have the resources to maintain their pre-retirement standard of living in retirement, perhaps resulting from individuals not being able to forecast the consequences of their investment decisions ( Goldstein, Johnson, and Sharpe 2008). Using the same benchmark replacement rate, Munnell, Webb, and Golub-Sass (2009) found that a few years later, the percentage of households who would fall short of reaching their retirement goals had grown to 51 percent. When taking into account the recent financial crisis, the retirement picture grows even bleaker. Munnell, Webb, and Golub-Sass (2007), for example, used data from the 2004 Survey of Consumer Finances and calculated a benchmark replacement rate for each household and found that 43% of households fell at least 10% short of reaching target replacement rates.
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Unfortunately, with this prolonged golden age comes the risk of outliving one’s money or undergoing a sudden decrease in quality of life. In all cases, those who interacted with virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones.Īlthough in the United States the age associated with retirement is 65, life expectancy at that age is 18 years ( Arias 2007), which reflects a gradual increase in retirement length that has been observed since the 19 th century ( Lee 2001). In four studies, participants interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In line with thinkers who have suggested that people may fail, through a lack of belief or imagination, to identify with their future selves ( Parfit 1971 Schelling 1984), we propose that allowing people to interact with age-progressed renderings of themselves will cause them to allocate more resources toward the future. In this article, we explore a third and complementary route, one that deals not with present and future rewards, but with present and future selves. Research on excessive discounting of the future suggests that removing the lure of immediate rewards by pre-committing to decisions, or elaborating the value of future rewards can both make decisions more future-oriented. Many people fail to save what they need to for retirement (Munnell, Webb, and Golub-Sass 2009).