The Consequences and Correction of Inflation in Personal Savings Estimates in Specific Future Time Frames

Abstract

ABSTRACT We examined the consequences of personal savings estimate inflation that occurs when decision makers provide savings estimates for specific future months when compared with the next month or the next year time frames, along with a method to attenuate this bias. The results of three experiments showed that the savings estimate inflation leads to significantly larger estimates of desired nest egg size (Experiment 1) and preference for riskier choices in other financial domains such as investment and employment decisions (Experiment 2). An attempt to attenuate this bias revealed that it is corrected when individuals provide a budgeting estimate prior to giving a savings estimate (Experiment 3). The theoretical and practical implications of the findings are discussed. Copyright © 2012 John Wiley & Sons, Ltd.

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