**Principal Investigator(s):**
**Joshua Tasoff**
Claremont Graduate University
Email: joshua.tasoff@cgu.edu
Homepage: https://sites.google.com/site/joshtasoff/
**Matthew Levy**
London School of Economics and Political Science
Email: m.r.levy@lse.ac.uk
Homepage: http://www.lse.ac.uk/economics/people/facultyPages/MatthewLevy.aspx
**Sample size:** 518
**Field period:** 5/1/2012-5/30/2012
**Abstract:**
Exponential-growth bias (EGB) is the tendency for individuals to partially neglect compounding of exponential growth. We develop a model wherein biased agents misperceive the budget constraint, and derive conditions for overconsumption and dynamic inconsistency. We construct an incentivized measure of EGB in a US-representative population and find substantial bias, with approximately one-third of subjects estimated as the fully-biased type. The magnitude of the bias is negatively associated with asset accumulation, and robust to a simple graphical intervention.
**Hypotheses:**
What is the extent of EGB in the U.S. population?
What are the financial correlates of EGB?
Can EGB be mitigated with a simple interactive graph typical of many investment websites?
**Experimental Manipulations:**
A fraction of the subjects received a simple interactive graph typical of many investment websites.
**Key Dependent Variables:**
EGB as measured by subject responses on financial questions that involve compounding interest.
**Summary of Findings:**
We find vast EGB. One third of Americans do not compound interest. Furthermore, EGB is highly correlated with assets. Going from full bias to full accuracy is associated with a ceteris paribus 55–90% increase in accumulated assets. The graphical intervention did not have a significant effect on EGB.
**Additional Information:**
The TESS portion of our study is Experiment 2 of a three-experiment paper.
**References**
Levy, Matthew, and Joshua Tasoff. 2016. "Exponential-Growth Bias and Lifecycle Consumption." <em>Journal of the European Economic Association</em> 14(3): 545-583. <a href="https://doi.org/10.1111/jeea.12149">DOI: 10.1111/jeea.12149</a>
