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• Welcome to this experiment. This presentation
  explains what it is all about.

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• Welcome to this experiment.
• It is funded by the Department for Work and
  Pensions of the UK Government.
• Please follow these Instructions carefully.
• Your payment (over and above the participation
  fee of 30) depends upon your decisions.
• You will be paid in cash at the end of the
  experiment, after completing a brief
  questionnaire and signing a receipt.

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Overview of the Experiment

• The experiment lasts a random number of periods.
• In each period you get an income denominated in
  units of experimental money.
• You have to decide each period how much of this
  income you want to convert into real money.
• Your payment for participating (in addition to
  the 30 that you have been promised) is the sum
  of the amounts of real money that you have
  converted from experimental money over all the
  periods of the experiment.
• You should try and maximise your payment from
  participating in this experiment.

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The Structure of the Experiment

• It simulates a life in three-year blocks from the
  age of 22.
• We call each 3-year block a period period 1 is
  at age 22, period 2 is at age 25 and so on.
  Retirement is at age 67, in period 16.
• The final period is determined by chance.
  However, the older you are, the less likely you
  are to survive.

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What happens in each period

• In each period before retirement (1 through 15)
  you get an income of 1000 units
• you have to decide how much of this to
  convert into real money and how much to save.
• In each period after retirement (16 to the end)
  you get a pension this is determined by your
  past savings...
• no decisions are necessary all your pension
  is converted into real money.

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Your Payment

• In each period you have to decide how much of
  your income you want to convert into real money.
• The Conversion table in the document that you
  have been given shows the rate at which
  experimental money is converted into real money.
• Your payment is the sum of these amounts over all
  the periods of the experiment up to the final
  period (plus the participation fee of 30).

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Your payment

• Note that your conversion in all periods
  determines your payment for participating in this
  experiment.
• If you convert less than 400 units in any period
  you lose money that period.
• The most money you can earn in any one period is
  450p 4.50.

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The Conversion Scale

• The full conversion table and the illustrative
  graph are in the written instructions. Here you
  can see that how much you convert in each period
  affects how much cash you get at the end of the
  experiment.
• Some examples are
• If you convert 0 in a period you lose 2.21 in
  that period
• If you convert 100 in a period you lose 1.57 in
  that period
• If you convert 200 in a period you lose
  1.00 in that period
• If you convert 400 in a period you earn nothing
  in that period
• If you convert 800 in a period you get 1.48 in
  that period
• If you convert 1000 in a period you get 2.03 in
  that period
• The maximum you can receive per period is
  4.50, so even if you converted 10,000, you would
  still only receive 3.

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An Example

• Suppose the experiment lasts for you a total of
  23 periods (15 before retirement and 8 after
  retirement).
• Suppose your conversions are 1000, 1000, 1000,
  1000, 1000, 1000, 1000, 1000, 1000, 1000, 1000,
  1000, 1000, 1000, 100, 100, 100, 100 and 100.
• Your payments would be (all in pence) 203, 203,
  203, 203, 203, 203, 203, 203, 203, 203, 203, 203,
  203, 203, 203, -157, -157, -157, -157, -157,
  -157, -157 and -157.
• Giving a total payment of 17.89 plus your
  participation fee of 30 giving a total payment
  of 47.89.

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The Number of Periods in the Experiment

• This is determined using statistical data so as
  to simulate an actual lifetime. Some of this data
  is set out in the document that you have been
  given.
• It tells you the chance of surviving to a
  particular age given any current age.
• The computer will repeat the information.
• There are different tables for men and women.

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Your Pension

• Regardless of your saving before retirement you
  get a guaranteed basic pension of 100 units per
  period in retirement.
• In addition you will get an increased pension
  determined by your savings over your life before
  retirement.
• Before you retire this pension is uncertain - as
  the rate of interest in the Funds is uncertain.
• It becomes known on retirement.

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Your Decisions

• In each period before retirement, you have to
  decide how much of your income to convert into
  real money and how much to save.
• If you decide to save some of your income you
  will have to decide in which Fund you want to
  save it.
• There are three different Funds which differ in
  their rates of interest.

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Saving Scheme

• You will also be asked if you want to stay in or
  opt out of a Saving Scheme.
• This obliges you to save at least 10 of your
  income.
• Any savings you make if you are in the Saving
  Scheme will be increased by 75 contributed by
  the experimenter.
• Membership of the Saving Scheme makes no
  difference to the rates of interest on the Funds.

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The Rate of Interest

• This specifies how savings grow in value between
  periods.
• If, for example, the rate of interest is 2, then
  the value of savings grows by 2 between periods
  100 this period becomes 102 next period, 200
  this period becomes 204 next period, and so on.
• If the rate of interest is 4, then the value of
  savings grows by 4 between periods 100 this
  period becomes 104 next period, 200 this period
  becomes 208 next period, and so on.

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The different Funds

• If you save some of your income, these savings
  will earn interest, which depends upon the Fund
  in which you make the saving.
• There are three Funds Fund 1 the most risky,
  Fund 2 the next Fund 3 is the least risky.
• Each Fund has two possible rates of interest
  each equally likely.

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The Funds and their Rates of Interest

• Fund 1 either 1.0 or 5.2 (average 3.1)
• Fund 2 either 1.5 or 4.3 (average 2.9)
• Fund 3 either 2.0 or 3.4 (average 2.7)
• With savings in Fund 1 they could rise by as
  little as 1 a period, but could rise by 5.2.
• With savings in Fund 2 they could rise by as
  little as 1.5 a period, but could rise by 4.3.
• With savings in Fund 3 they could rise by as
  little as 2.0 a period, but could rise by 3.4.

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Your Pension

• As we have already noted this will be equal to
  100 (the basic pension) plus an amount which will
  be determined on the basis of your savings in the
  various Funds and their actual rates of interest.
• The actual formula is rather complicated

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Illustrating your likely pension

• so we present graphically and in tabular
  form the possible values of your pension.
• Scenario 1 on the basis of your past savings and
  those that you are considering making this period
  (assuming that you make no further savings in the
  future).
• Scenario 2 on the basis of your past savings and
  those that you are considering making this period
  (assuming that you make the same savings in the
  same Fund in all future periods).
• We now show you the screen that you will see

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The Basic Decision Screen
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Survival probabilities
Summary of your position
Implied distribution of the pension with the same
saving in the same fund in all future periods
Planned allocation between conversion and savings
Decision whether you want to stay in or opt out
of Saving Scheme
Fund into which the savings are to be put
Implied distribution of the pension with no
further saving
Click here when you are happy with your decision
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What you do each period before retirement

• Decide how much of your income of 1000 units you
  want to convert into real money and how much you
  want to save
• insert this in the boxes at the left.
• Decide whether to stay in or opt out of the
  Saving Scheme
• click the appropriate box at the left.
• If you save some of your units, you need to
  decide in which Fund you want to save them
• click one of the Fund boxes at the left.

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What you do each period after retirement

• Nothing.
• Your pension is determined
• it is automatically converted into real money
  using the Conversion Scale.
• You just have to wait until the end.

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When the experiment is over

• We ask you to complete a brief questionnaire
  giving us demographic information.
• We ask you to sign a receipt for your payment.
• We pay you your payment
• and you are free to go.

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Questions

• To satisfy ourselves that you have understood
  these Instructions, we would like you to respond
  to some Control Questions.
• If you have any questions at this stage, please
  ask one of the experimenters.
• When this question phase is over, you are free to
  start.

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• Thank you for your participation

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