A Theory of Ex Post Rationalization

Eyster, Erik; Li, Shengwu; Ridout, Sarah

doi:10.48550/arxiv.2107.07491

Cited by 1 publication

(2 citation statements)

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“…Finally, we do not find evidence that the mere act of asking participants to describe their thought processes affects thought processes reported nor other variables, for example, due to social desirability (Fox et al, 2011;Krumpal, 2013) or ex post rationalization (Eyster et al, 2021). That is, we do not find differences in the fraction of participants that reported attempts at math, the task duration, text length entered and annuity rates estimated, and accuracy between the half of participants that were asked to describe their thought processes as part of the instructions (and thus might have felt a need to report or use more sophisticated processes) and the other half that received this request after they completed the task (and thus could not anticipate being asked to report on their thoughts).…”

Section: Discussion Of Studycontrasting

confidence: 79%

“…Participants were also asked to provide estimates of future life expectancy and the interest rate, to explore whether their assessments were realistic. To allow us to identify whether instructions to describe thought processes affected responses (Wilson et al, 1993), for example, due to social desirability (Fox et al, 2011;Krumpal, 2013) or ex post rationalization (Eyster et al, 2021), half of participants were asked to describe their thought processes as part of the instructions for the annuity valuation task and the other half received this request after they completed the task. If social desirability had affected responses and/or processes, we expected differences between those two groups of participants in the frequency of particular processes reported, annuity valuations, and accuracy.…”

Section: The Current Researchmentioning

confidence: 99%

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Guessing, math, or something else? Lay people's processes for valuing annuities

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2023

Behavioral Decision Making

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Researchers have long been trying to understand why individuals dislike annuities. Here, we investigate if the process individuals use to assess the financial value of annuities may lead them to inaccurately value annuities. In Study 1, participants were asked to assess the monthly payments associated with a specific annuity lump sum or the annuity lump sum associated with a specific monthly payment. They were then asked to describe how they arrived at their answers. We find that when making this assessment, 42% of participants report attempts at using math, with some even describing mathematical formulas. Most other participants reported guessing instead. Reporting attempts at math is more common among participants with higher financial literacy and numeracy. Reported attempts at math, financial literacy, and numeracy predict arriving at more realistic financial values for annuities, as well as incorporating assessments of life expectancy in the math. Based on this process knowledge, we then designed an experiment in Study 2 and tested the effect of presenting information about life expectancy, providing feedback about payouts or their combination. We find that we can thereby change the assessed financial value of annuities and increase participants' interest in annuities, especially among participants that reported attempts at using math. Understanding the processes individuals use to assess the value of annuities informs theory and practice.

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Section: Discussion Of Studycontrasting

confidence: 79%