**Sample size:** 1400
**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 R. and Tasoff, Joshua, Exponential-Growth Bias and Lifecycle Consumption (June 1, 2013). Available at SSRN: http://ssrn.com/abstract=2144358 or http://dx.doi.org/10.2139/ssrn.2144358