Choice experiments represent a specific quantitative method for examining what factors and how can influence individuals’ choices. In the context of this study, a choice experiment has been selected as the most appropriate methodology to research why employees in the public health sector in Norway choose not to save for retirement in some cases. A choice experiment is effective to provide a researcher with quantitative information on behavioral factors that cause individuals’ choices.
For this study, the focus is also on determining potential differences in people’s choices and decisions depending on their gender, age, job position, and income. The application of this method is based on completing the following stages: the identification of attributes, the development of choice sets, the designing of a questionnaire, and data analysis.
Behavioral Factors and Attributes
The behavioral factors selected as influencing individuals’ decisions and choices in this study include Save More Tomorrow, heuristics, status quo bias, prospect theory, expected utility theory, and hyperbolic discounting. For each of these factors, attributes impacting individual decisions regarding retirement savings have been determined. Attributes identified for each factor need to be discussed in detail.
Save More Tomorrow (SMarT), as a retirement plan for employees, is based on the idea of the automatic enrollment of employees into the program, and the process of altering the proposed designation requires an individual’s actions. In this study, participants’ choice of SMarT and their dependence on the discussed principle is measured with the help of the following attributes: the amount of savings, increases in savings, personal control and responsibility, and expected prospects. Question 1 is related to this factor to measure it according to the attributes.
Heuristics is associated with making decisions depending on previous experiences, trials, choices, and following the rule of thumb, leading to selecting a wrong or unprofitable way. In the study, this factor is measured in two questions concerning the following attributes: investment decisions, patterns, risks, potential gains, the period of starting saving, changes in the amount of savings, the selection of retirement plans, the availability of information, and the allocation of resources.
These attributes are helpful to indicate whether an individual prefers to decide on retirement savings following the simplest and evident way of reasoning or whether decisions are made based on careful analysis. Questions 2 and 3 have been formulated to measure this factor.
Status quo bias is a type of psychological bias that causes individuals to make financial decisions concerning the current state of affairs without changing anything in the selected strategies. Thus, it is assumed that individuals will avoid reallocating their resources while being provided with more investment options depending on this bias. Attributes that are effective to demonstrate individuals’ decision-making processes include the period of starting saving, changing a retirement plan, the allocation of funds, risks, and potential gains. Depending on the data regarding this bias, it will be possible to conclude why individuals choose not to make retirement savings. Question 4 has been formulated to address this factor.
Prospect theory explains persons’ financial decisions concerning their individual choices and subjective thinking. According to this theory, individuals are inclined to select those options that are less painful in the present because of low losses, but not those that are more beneficial for the future because of high gains. Attributes selected to measure this factor are presented in Question 5, and they include the type of investment, the annual rate of return, and risks.
Expected utility theory explains individuals’ decision-making based on the uncertainty associated with the analysis of financial options and thinking of potential risks and gains. In this study, this factor is measured with the help of Question 6, and the following attributes are used: the type of investment, the annual rate of return, and risks. The attributes are the same as selected for measuring the prospect theory as a behavioral factor.
Hyperbolic discounting is associated with individuals’ focus on receiving gains immediately rather than waiting for them as prospective ones. This behavior can explain why some people choose not to make retirement savings despite the obvious benefits of this decision for their future. In Question 7, this factor is measured with the help of such attributes as the period of starting saving and two approaches to calculating the amount of persons’ regular contribution.
Experimental Design: The Description of a Choice Experiment
To understand how the selected behavioral factors can influence individuals’ decisions regarding saving for retirement, seven questions have been formulated. Each question represents the set of choices based on differences in several attributes typical of the first or the second option for a participant to choose. After determining factors and associated attributes for hypothetical choices made by the study participants, it is necessary to assign categorical data with numbers to use in data analysis.
Table 1 represents values assigned to different options in each set of choices to present categorical information in the form of numbers and prepare quantitative input data. This step is important for further statistical analysis of data. In the demographic section, answers to questions receive the value according to the example in Table 2.
Table 1. Values for Options.
Table 2. The Example of Values for Background Questions.
Data Collection: The Questionnaire for the Participants
Introduction
This questionnaire consists of two sections: The Demographics Section and The Choice Sets Section. Please, answer the questions from the first section choosing the variant that is most appropriate for you. In the second section, you will be provided with seven sets of options to choose from, and they are related to your thinking and behavior regarding saving for retirement. Each choice set includes two options; please, choose the option that mostly reflects your decision-making, attitude, and behavior regarding the topic.
The Demographic Section
Please, read the questions on your background and choose the options related to you.
- Specify your gender.
- Male.
- Female.
- Specify your age.
- 21-25 years old.
- 26-30 years old.
- 31-35 years old.
- 36-40 years old.
- 41-45 years old.
- 46-50 years old.
- 51-55 years old.
- 56-60 years old.
- Specify your position in your current company.
- What is your income based on the salary per year?
- Less than $50,000.
- $51,000-$80,000.
- $81,000-$100,000.
- $101,000-$120,000.
- More than $120,000.
- Do you save for retirement?
- Yes.
- No.
- Are you enrolled in the retirement plan?
- Yes.
- No.
The Choice Sets Section
Please, read the questions and choose the option that is mostly related to you among the proposed ones.
If you choose between being involved in a retirement plan based on the Save More Tomorrow Program (SMarT) and making regular savings on your own, what option will you select?
Suppose that you have $6,000 of your retirement savings and three investment alternatives related to balanced, equity, and debt specific schemes. What option reflects your usual decision-making and argumentation regarding financial decisions in such cases?
If you choose between the two proposed options describing people’s attitudes to retirement savings, what option will you select as mostly reflecting your attitude and behavior?
If you choose between the two proposed options related to your approach to retirement savings, what option will you select as reflecting your situation?
If you choose between two investment options for your retirement savings, what option will you select as mostly reflecting your current intention?
If you choose between two investment options for your retirement savings, what option will you select as mostly reflecting your reasoning?
If you choose between the two proposed options describing people’s attitude to retirement savings, what option will you select as mostly reflecting your attitude and behavior?
Data Analysis
After receiving the answers to the questions, it is necessary to present the participants’ results in the form of a matrix to be entered to conduct the statistical analysis. The example of the matrix for a hypothetical participant (Participant 1) is presented in Table 3. These numerical data can be used for the factorial and regression analysis to determine the relationship between behavioral factors and individuals’ demographic specifics and their choice of saving or not for retirement.
Table 3. The Example of Input Data.
Conclusion
This methodology is based on the application of a choice experiment including seven sets of choices. Each set of choices is related to a separate behavioral factor to study its impact on individuals’ decision-making. Two options are proposed for each choice set that is aimed to reflect different individuals’ reasoning and decisions. Differences in individuals’ age, gender, salary, and career that can influence their choice are also taken into account.