臺大管理論叢 NTU Management Review VOL.29 NO.2

A Study of Member-Choice Management Platform for Pension Funds 20 aversion, hyperbolic discounting, and behavioral life-cycle investment. The status quo bias is a preference for people to keep their current status and avoid change while making difficult decisions or in uncertain situations. Since making change under uncertainty requires much time and effort, inertia or procrastination becomes the best strategy if there is no strong indication that change is better than no change. Past empirical evidence shows that most participants of pension plans keep the same savings rates as when they first joined the plans since change of savings rates requires them to carefully rethink how much to save and how much to consume, and it costs time and effort to reallocate assets. Therefore, the design for the initial default options becomes significant. Even though participants can figure out how much to save over their lifetime, they still face the problem of self control. Participants need the willpower to implement their optimal pension plan in that they have to contribute a significant amount of their salaries to their retirement accounts. The sacrifice of current consumption for future retirement benefit will cause the pain of loss and lead to loss aversion, which refers to people's tendency to prefer avoiding losses over acquiring equivalent gains. Loss aversion makes people weigh the pain of loss much higher than the happiness of gain. One will lose more satisfaction from a $100 loss than that achieved from a $100 gain. The empirical evidence shows that loss hurts twice as much as gain yields pleasure. Loss aversion makes workers not willing to participate in the retirement plans and not willing to increase the savings into their savings accounts if there is no significant benefit. Moreover, Ainslie argues that hyperbolic discounting valuation falls relatively rapidly for short periods but decays more slowly for long periods. Hyperbolic discounting creates strong preferences for small rewards earned immediately over large ones that are earned later, revealing that individuals make choices that are inconsistent over time - today they select what they would prefer not to have selected tomorrow. Since people have present- biased preference and weigh current and near-term consumption heavily, Thaler and Benartzi (2004) find that the hyperbolic discounting concept could reduce the impact of loss aversion on workers’ resistance of raising retirement savings. They developed a pension plan, Save More Tomorrow (SMT), encouraging workers to make promises and commit themselves now to increasing their savings into their retirement accounts later, whenever their pays are raised. Empirical findings show SMT is very effective.