Goldstein, D.G., Hershfield, H.E., & Benartzi, S. (2016). Journal of Marketing Research, 53, 804-813.
Research on choice architecture is now shaping policy around the world, touching on areas ranging from retirement economics to environmental issues. Recently, researchers and policy makers have started to pay more attention not just to choice architecture but also to information architecture: the format in which information is presented to people. Here, we investigate information architecture as it applies to consumption in retirement. Specifically, in four experiments, we examine how people react to lump sums versus equivalent streams of monthly income. Our primary question of interest is whether people exhibit an “illusion of wealth” by which a lump sum at retirement age (e.g., $100,000) seems larger than its monthly equivalent (e.g., $500 per month for life). We predict and test whether people exhibit the illusion of wealth as well as the opposite effect, by which lump sums seem smaller than their monthly equivalents. We conclude by discussing how format-dependent perceptions of wealth might drive retirees to claim social security benefits too early, avoid purchasing an annuity, or to cash out their defined benefit pensions.