Framing the Future First: Using Query Theory to Explore Claiming - PowerPoint PPT Presentation

Framing the Future First: Using “Query Theory” to Explore Claiming Preferences Melissa Knoll* 10/4/2012 Financial Literacy Seminar Series George Washington University *Joint work with Kirstin Appelt, Eric Johnson, and Jon Westfall Center for Decision Sciences, Columbia University ** The opinions expressed are those of the authors and do not represent the views of the Social Security Administration.

Retiring in America  The Social Security Administration (SSA) is neutral with regard to when individuals should claim retirement benefits.  40-50% of Americans claim benefits as soon as they are eligible (Muldoon & Kopcke, 2008; Song & Manchester, 2007).  Many Americans are financially underprepared for a long retirement (EBRI, 2010; Thaler & Benartzi, 2004).  SS retirement benefits are a primary source of income for over 50% of older Americans (SSA, 2010).

Claiming Retirement Benefits  Benefits can be claimed at any time after age 62  The longer claiming is delayed, the larger the monthly benefit  Claiming is an intertemporal choice  Claiming is a choice between smaller benefit sooner and larger benefit later

Query Theory (Johnson et al., 2007; Weber et al., 2007)  Memory-based model of preference construction  People construct preferences “on the fly”  They construct preferences by asking themselves about pros and cons  Decisions often have natural reference point/default  Initial thoughts biased in favor of reference point  Subsequent thoughts influenced by this bias (suppressed)  Reference point predicts order and balance of thoughts, which predict choice

Query Theory & Claiming  Early claiming is natural reference point for many Americans  According to QT…  people will first query their memory for arguments in favor of claiming early (e.g., “declining health” or “prefer early retirement”),  then they will query their memory for arguments in favor of delaying claiming (e.g., “I would like to work as long as I can” or “I want my full benefits”).

QT, Framing, and Claiming  Change reference point (early claiming) by changing the frame  According to QT… change reference point  change query order  change preferences

Overview of Studies  Study 1: Explore claiming decision  Study 2: Display change: Mild Framing  Study 3: Display change: Extreme Framing  Study 4: Process change (1): QT  Study 5: Process change (2): A QT checklist

Study 1: Exploratory Study  Many participants will prefer to claim early (replicate survey data — spikes at 62 and FRA)  Early claiming will be reference point for many participants  Prominence of thoughts in favor of early claiming will predict preference for early claiming

Many participants prefer to claim early 45% Not Yet Eligible 40% Percent of Participants Eligible 35% 30% 25% 20% 15% 10% 5% 0% 62 63 64 65 66 67 68 69 70 Preferred Claiming Age • 47% of participants preferred to claim benefits early (i.e., before FRA) • 33% of participants preferred to claim benefits as early as possible • Not yet eligible — 36% preferred to claim early and 26% preferred to claim as early as possible • Eligible — 61% preferred to claim early and 42% preferred to claim as early as possible

Early claiming is a reference point for many participants • Which claiming age and benefit amount combination did they think about the most? 70% Not Yet Eligible Percent of Participants 60% Eligible 50% 40% 30% 20% 10% 0% Early claiming Full claiming Delayed claiming Reference Point • More participants used early claiming as a reference point (51%) than full (21%) or delayed claiming (28%) • Reference point and preferred claiming age were highly correlated, r (1080) = .78, p < .001.

Prominence of thoughts in favor of early claiming predicts preferences for early claiming Prominence of Early-Claiming Thoughts β = -.68, p < .001 Preferred Claiming Age

Exploratory Study — Main Findings  Replicate retirement spikes  Many participants adopt early claiming as reference point  Prominence of early-claiming thoughts predicts preference for early claiming

Study 2: Mild Frame Change  Many people use early claiming as reference point  What happens to claiming preferences if we change the information display?

Participants in the shifted axis condition do not adopt later claiming as a reference point Percent of Participants Standard Axis 50% Shifted Axis 40% 30% 20% 10% 0% Early-as-possible Early claiming Full claiming Delayed claiming claiming *Note: We added an “early -as- possible claiming” option p > .5

Participants in the shifted axis condition do not prefer to claim later Mean Preferred Claiming Age 70 69 68 67 66 65 64 65.20 65.29 63 62 Standard Axis Shifted Axis p > .2

Study 3: Extreme Frame Change

Participants seeing the extreme graph do not prefer to claim later

Study 4: QT Process Change  Many people use early claiming as reference point  What happens to claiming preferences if we change how people approach the decision? Ask participants to “ frame the future first ”  Natural order : Participants list early-claiming thoughts first and later-claiming thoughts second  Unnatural order : Participants list later-claiming thoughts first and early-claiming thoughts second

Study 4: QT Process Change  Participants in unnatural order will …  adopt later claiming as reference point  have less prominent thoughts about early claiming  prefer to claim later

Participants in the unnatural order adopt later claiming as a reference point Percent of Participants 70% Natural Order 60% Unnatural Order 50% 40% 30% 20% 10% 0% �Early-as- � Early claiming � Full claiming � Delayed possible claiming claiming Reference Point t (214) = -3.32, p = .001, Cohen ’ s d = .45

Participants in the unnatural order have less prominent thoughts in favor of early claiming 0.80 0.60 Early-Claiming Thoughts Mean Prominence of 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80 Natural Order Unnatural Order t (283.1) = 25.01, p < .001, Cohen ’ s d = 2.77

Participants in the unnatural order prefer to claim later (approx. 9 months) 70 Mean Preferred Claiming Age 69 68 67 66 65 64 65.59 64.81 63 62 Natural Order Unnatural Order t (319.9) = -2.47, p = .01, Cohen ’ s d = .28

Study 5: QT Checklist

Checklist order significantly affected claiming age 70 Mean preferred claiming age 69 68 67 66 65 64 65.28 65.91 63 62 Natural Order Unnatural Order

Effectiveness of Interventions 15 10 Months relative to control 5 0 -5 -10 -15 Brown, Kapetyn & Mitchell (2011) -20

Summary  The claiming decision is extremely important, but:  It seems to be constructed  44% say they first think about it within a year of retiring (EBRI, 2008)  Suggests it can be changed  The reference point is often early claiming  Changing the frame can change the reference point  Query Theory says: *change reference point, change query order, change preferences*  Understanding the process can help design interventions.  Changing displays: Not yet  Changing the order of consideration (“frame the future first”): Yes!

Thank you! Questions? Comments?