FRAMING AND CLAIMING: HOW INFORMATION‐FRAMING AFFECTS EXPECTED SOCIAL SECURITY CLAIMING BEHAVIOR

• Date: 01 January 2016
• DOI: http://doi.org/10.1111/j.1539-6975.2013.12004.x
• Published date: 01 January 2016
• Author: Jeffrey R. Brown,Arie Kapteyn,Olivia S. Mitchell

FRAMING AND CLAIMING:HOW INFORMATION‐FRAMING

AFFECTS EXPECTED SOCIAL SECURITY CLAIMING BEHAVIOR

Jeffrey R. Brown

Arie Kapteyn

Olivia S. Mitchell

ABSTRACT

This article provides evidence that Social Security benefit claiming decisions

are strongly affected by framing and are thus inconsistent with expected

utility theory. Using a randomized experiment that controls for both

observable and unobservable differences across individuals, we find that the

use of a “breakeven analysis” encourages early claiming. Respondents are

more likely to delay when later claiming is framed as a gain, and the claiming

age is anchored at older ages. Additionally, the financially less literate,

individuals with credit card debt, and those with lower earnings are more

influenced by framing than others.

INTRODUCTION

The assumption that individuals maximize expected lifetime utility is the workhorse

model of microeconomics. This is especially true in the literature on financial

Jeffrey R. Brown is at the Department of Finance, University of Illinois, 515 East Gregory Drive,

Champaign, IL 61820. Arie Kapteyn is at the Center for Economic and Social Research,

University of Southern California, 12015 Waterfront Drive, Playa Vista, CA 90094-2536. Olivia

S. Mitchell is at The Wharton School, University of Pennsylvania, 3620 Locust Walk, 3000 SH-

DH, Philadelphia, PA 19104. The authors can be contacted via e-mail: brownjr@illinois.edu,

kapteyn@usc.edu, and mitchelo@wharton.upenn.edu. The research reported herein was

performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as

part of the Financial Literacy Consortium. The authors also acknowledge support provided by

the Pension Research Council and Boettner Center at The Wharton School of the University of

Pennsylvania, and the RAND Corporation. The authors thank Mary Fu and Caroline Tassot for

their expert research assistance, and Mathew Greenwald, Tania Gutsche, Lisa Marinelli, Lisa

Schneider, Bas Weerman, and Yong Yu for their invaluable assistance on the project. We also

thank Steve Goss and Steve McKay of the SSA for their guidance. Finally, we thank Jeffrey

Liebman, Erzo Luttmer, Stefan Trautmann, participants in the Munich Behavioral Insurance

Conference, and three anonymous referees for helpful feedback on earlier versions of the paper.

Any opinions and conclusions expressed herein are solely those of the authors and do not

represent the opinions or policy of SSA, any agency of the Federal Government, or any other

institution with which the authors are affiliated.

© 2013 The Journal of Risk and Insurance. 83, No. 1, 139–162 (2016).

DOI: 10.1111/j.1539-6975.2013.12004.x

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decisions associated with retirement: life-cycle expected utility models have been

widely used in studies of savings and portfolio decisions (e.g., Hubbard, Skinner, and

Zeldes, 1994), retirement behavior (e.g., Rust and Phelan, 1997; Gustman and

Steinmeier, 2005; French and Jones, 2011), and retirement income decisions (e.g.,

Mitchell et al., 1999). As forcefully stated by Tversky and Kahneman (1986, p. S253),

however, “an essential condition for a theory of choice that claims normative status is

the principle of invariance: different representations of the same choice problem

should yield the same preference.”

1,2

In this article, we provide evidence that

consumers violate the invariance principle when making an extremely important

financial decision near retirement: when to claim Social Security benefits.

That important economic decisions can be substantially altered by the way in which

information is framed has been known at least since Kahneman and Tversky (1981)

famously reported that presenting a public policy choice in terms of “lives saved”

versus “lives lost” dramatically shifted the proportion of the respondents who

supported a given policy. Closer in context to this article, Payne et al. (2011) show that

estimates of life expectancy differ depending on whether individuals are asked the

age they expect to “live to,” or the age that they will “die by.” More generally,

numerous studies indicate that individuals make decisions based not only on their

consequences—as would be predicted by expected utility theory—but also based on

how the choices are framed.

3

Despite a vast literature on retirement income security, researchers have only recently

begun to explore whether framing affects decisions related to retirement income. This

is especially surprising given the enormous influence that behavioral economics has

had in other areas of retirement research and practice, such as automatic enrollment

(e.g., Madrian and Shea, 2001). In any study of retirement income security, Social

Security plays a central role because, in aggregate, it is the single largest source of

retirement income for retirees in the United States and the only meaningful source of

inflation-indexed income. As such, the decision of when to claim benefits is one of the

important financial decisions faced by individuals age 62 and older. Approximately

93 percent of all U.S. workers are covered under the U.S. Social Security system,

4

and

although individuals can claim as early as age 62, they can also defer claiming to as

1

We will use the “invariance” terminology in this article. One could also refer to this as a form of

“consequentialist” behavior, that is, that only the consequences matter, not how they are

presented. However, the term “consequentialist” is often used (e.g., Hammond, 1987) to refer

to the idea that an individual’s choice should be invariant to the structure of the decision tree.

In our context, we are changing only the presentation of the information, rather than the

structure of the choice.

2

The property of invariance is not restricted to expected utility theories but also holds for

various generalizations, (see e.g., Starmer, 2000).

3

A few examples of how framing influences a wide range of other economic decisions are

Andreoni (1995), Bateman et al. (1997), and Shafir, Diamond, and Tversky (1997), among many

others. Bruine de Bruin (2010) and references therein discuss specific issues related to framing

in a survey context. De Martino et al. (2006) use fMRI to study brain activity while subjects

perform decision tasks presented in either a gain or a loss frame.

4

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140 THE JOURNAL OF RISK AND INSURANCE