Mitchell, Olivia S

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  • Publication
    Financial Sophistication in the Older Population
    (2012-02-01) Lusardi, Annamaria; Mitchell, Olivia S; Curto, Vilsa
    This paper examines data on financial sophistication among the U.S. older population, using a special-purpose module implemented in the Health and Retirement Study. We show that financial sophistication is deficient for older respondents (aged 55+). Specifically, many in this group lack a basic grasp of asset pricing, risk diversification, portfolio choice, and investment fees. Subpopulations with particular deficits include women, the least educated, persons over the age of 75, and non-Whites. In view of the fact that people are increasingly being asked to take on responsibility for their own retirement security, such lack of knowledge can have serious implications.
  • Publication
    Developments in State and Local Pension Plans
    (1999) Mitchell, Olivia S; McCarthy, David; Wisniewski, Stanley C; Zorn, Paul
  • Publication
    Financial Literacy and Financial Sophistication Among Older Americans
    (2009-10-01) Lusardi, Annamaria; Mitchell, Olivia S; Curto, Vilsa
    This paper analyzes new data on financial literacy and financial sophistication from the 2008 Health and Retirement Study. We show that financial literacy is lacking among older individuals and for the first time explore additional questions on financial sophistication which proves even scarcer. For this sample of older respondents over the age of 55, we find that people lack even a rudimentary understanding of stock and bond prices, risk diversification, portfolio choice, and investment fees. In view of the fact that individuals are increasingly required to take on responsibility for their own retirement security, this lack of knowledge has serious implications.
  • Publication
    Complexity as a Barrier to Annuitization: Do Consumers Know How to Value Annuities?
    (2013-03-01) Brown, Jeffrey R; Kapteyn, Arie; Luttmer, Erzo FP; Mitchell, Olivia S
    This paper provides experimental evidence that individuals have difficulty valuing annuities, and this difficulty – rather than a preference for lump sums – can help explain observed low levels of annuity purchases. Although the median price at which people are willing to sell an annuity is close to median actuarial values, this masks notable heterogeneity in responses including substantial numbers of respondents whose responses are difficult to reconcile with optimizing behavior under any reasonable parameter assumptions. We also discover that people are willing to pay substantially less to buy a larger annuity, a result not due to liquidity constraints or endowment effects. Strikingly, we also learn that individual responses to the buy versus sell decisions are negatively correlated, an effect that is stronger for the less financially sophisticated. Our findings are consistent with boundedly rational consumers who adopt a “buy low, sell high” heuristic when faced with a complex trade-off. Moreover, at the margin, subjective valuations vary nearly one-for-one with actuarial values but are uncorrelated with utility-based measures designed to measure the insurance value of annuities. This supports the hypothesis that people use simplifying heuristics to think about annuities, rather than engaging in optimizing behavior. Results also underscore the difficulty of explaining the cross-sectional variation in annuity valuations using standard empirical models. Our findings raise doubt about whether most consumers can make optimal decisions about annuitization.
  • Publication
    Worklife Determinants of Retirement Income: Differences Across Men and Women
    (1999) Levine, Philip B; Mitchell, Olivia S; Phillips, John W.R.
  • Publication
    Collective Investments for Pension Saving: Lessons from Singapore’s Central Provident Fund Scheme
    (2010-01-01) Koh, Benedict SK; Mitchell, Olivia S; Fong, Joelle HY
    Singapore’s mandatory national defined contribution pension system permits participants to invest their retirement savings in a wide range of investment instruments if they wish, rather than leaving their savings in CPF accounts to earn interest rate by default. This paper asks whether workers seeking to earn higher returns can expect to do better than the CPF-managed default, by moving their money into professionally-managed unit trusts. We use historical data to investigate whether fund managers possess superior stock-picking and market-timing skills, as well as whether they exhibit persistence in performance and offer diversification benefits to participants. The evidence is mixed, which could explain why so few participants opt out of the CPF-run default fund.
  • Publication
    Turning Wealth into Lifetime Income: The Challenge Ahead
    (2010-09-01) Mitchell, Olivia S; Piggott, John
    Longevity risk management was a family obligation in the old days; in the 20th century, as development, migration, and the scattering of families became more common, government and employers took over the role of providing longevity insurance. In the 21st century, demographic shift and government overspending has put all of these sources under stress. This chapter asks whether the future will be an era of more general and formalized private longevity insurance provision through annuities, and we explore answers across several different countries. Some nations have adopted mandatory annuitization; others have mandatory accumulation plans without requiring annuitization; and still others remain heavily dependent on traditional social security with private annuities representing what might best be described as a residual market. Also in some nations, innovations in longevity insurance products have been embraced, apparently rather successfully, while in others – notably among emerging economies, people lack a significant annuity market.
  • Publication
    Labor Market Uncertainty and Pension System Performance
    (2009-09-01) Mitchell, Olivia S; Turner, John A
    The financial market crisis has prompted policymakers to devote substantial attention to ways in which capital market risks shape pension performance, but few analysts have asked how shocks to human capital shape retirement wellbeing. Yet human capital risks due to fluctuations in labor earnings, employment volatility, and survival, can have a profound influence on pension accumulations and payouts. This paper reviews existing studies and offers a framework to think about how human capital risk can influence pension outcomes. We conclude with thoughts on how future analysts can better assess sensitivity of pension plan outcomes to a labor income uncertainty.
  • Publication
    Public Sector Pension Plans: Lessons and Challenges for the Twenty-First Century
    (2000-01-01) Hustead, Edwin C.; Mitchell, Olivia S
  • Publication
    Footnotes Aren’t Enough: The Impact of Pension Accounting on Stock Values
    (2008-01-01) Coronado, Julia; Sharpe, Steven A; Mitchell, Olivia S; Nesbitt, S. Blake
    Some research has suggested that companies with defined benefit (DB) pensions are sometimes significantly misvalued by the market. This is because the measures of pension cost and pension net liabilities embedded in financial statements, taken at face value, can provide very misleading picture of pension finances. The more pertinent information on pension finances is relegated to footnotes, but might not receive much attention from portfolio managers. But dramatic swings in the financial conditions of large DB plans around the turn of the decade focused widespread attention on pension accounting practices, and dissatisfaction with current accounting standards has recently prompted the Financial Accounting Standards Board (FASB) to take up a project revamp DB pension accounting. Arguably, the increased attention should have made investors wise to the informational problems, thereby eliminating systematic mispricing in recent years. We test this proposition and conclude that investors continued to misvalue DB pensions, inducing sizable valuation errors in the stock of many companies. Our findings suggest that FASB’s current reform efforts could substantially aid the market’s ability to value firms with DB pensions.