DNB Household Survey Research Articles

Can the Longevity Risk Alleviate the Annuitization Puzzle? Empirical Evidence from Dutch Data

This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2005. Contrary to the majority of papers in the annuitization puzzle literature, this study allows to control explicitly for the subjective survival probability (SSP), a key driver of the decision about whether to annuitize or not as a perceived measure of longevity risk. We nd that people expecting to live longer do claim to prefer the annuity. This nding is very robust to controlling for bequest motives. The relevance of this paper is twofold. First, it delivers an important empirical result on the role of the SSP that is still not directly tested in the literature. Second and more important, combined with the empirical evidence that on average individuals tend to systematically underestimate their life expectancy, the ndings have strong policy implications. The annuitization puzzle may be alleviated by helping individuals in better assessing their longevity risk, rather than forcing their

Can the Longevity Risk Alleviate the Annuitization Puzzle? Empirical Evidence from Dutch Data

This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2005. Contrary to the majority of papers in the annuitization puzzle literature, this study allows to control explicitly for the subjective survival probability (SSP), a key driver of the decision about whether to annuitize or not as a perceived measure of longevity risk. We find that people expecting to live longer do claim to prefer the annuity. This finding is very robust to controlling for bequest motives. The relevance of this paper is twofold. First, it delivers an important empirical result on the role of the SSP that is still not directly tested in the literature. Second and more important, combined with the empirical evidence that on average individuals tend to systematically underestimate their life expectancy, the findings have strong policy implications. The annuitization puzzle may be alleviated by helping individuals in better assessng their longevity risk, rather than forcing their actions.

Macro and Micro Drivers of House Price Dynamics: An Application to Dutch Data

What is the role of micro and macro factors in determining house prices? We address this question empirically by analysing survey data on housing and mortgages from the DNB Household Survey for the period 1993-2009. We focus on the determinants of house owners' subjective assessment of the value of their house. We highlight three main findings. First, subjective house prices are strongly related to household-specific and house-specific factors, including year of construction, cohort, education level, income and wealth. Financing conditions - in particular the presence of a mortgage as as the mortgage type, and the mortgage rate - play an important role. Second, we find that macro variables such as the long-term interest rate also influence to an important extent how households value their home. Third, there is evidence of well behaved dynamics of subjective house prices, both in terms of persistence and in terms of mean reversion, indicating that house prices tend to converge to their long run equilibrium value. Finally, our findings support a certain degree of heterogeneity and segmentation in subjective house prices, especially along the dimensions of geographical region and degree of urbanization, funding conditions, and income expectations.

Reversing the Question: Does Happiness Affect Consumption and Savings Behavior?

I examine the impact of happiness on consumption and savings behavior using data from the DNB Household Survey from the Netherlands and the German Socio-Economic Panel. Instrumenting individual happiness with regional sunshine, the results suggest that happier people save more, spend less, and have a lower marginal propensity to consume. Happier people take more time for making decisions and have more control over expenditures; they expect a longer life and (accordingly) seem more concerned about the future than the present; they also expect less inflation in the future.

Nonparametric Analysis of Household Labor Supply: Goodness of Fit and Power of the Unitary and the Collective Model

Abstract We compare the empirical performance of unitary and collective labor supply models, using representative data from the Dutch DNB Household Survey. We conduct a nonparametric analysis that avoids the distortive impact of an erroneously specified functional form for the preferences and/or the intrahousehold bargaining process. Our analysis focuses on the goodness of fit of the two behavioral models. To guarantee a fair comparison, we complement this goodness-of-fit analysis with a power analysis. Our results strongly favor the collective approach to modeling the behavior of multiperson households.

Financial Literacy and Stock Market Participation

Individuals are increasingly put in charge of their financial security after retirement. Moreover, the supply of complex financial products has increased considerably over the years. However, we still have little or no information about whether individuals have the financial knowledge and skills to navigate this new financial environment. To better understand financial literacy and its relation to financial decision-making, we have devised two special modules for the DNB Household Survey. We have designed questions to measure numeracy and basic knowledge related to the working of inflation and interest rates, as well as questions to measure more advanced financial knowledge related to financial market instruments (stocks, bonds, and mutual funds). We evaluate the importance of financial literacy by studying its relation to the stock market: Are more financially knowledgeable individuals more likely to hold stocks? To assess the direction of causality, we make use of questions measuring financial knowledge before investing in the stock market. We find that, while the understanding of basic economic concepts related to inflation and interest rate compounding is far from perfect, it outperforms the limited knowledge of stocks and bonds, the concept of risk diversification, and the working of financial markets. We also find that the measurement of financial literacy is very sensitive to the wording of survey questions. This provides additional evidence for limited financial knowledge. Finally, we report evidence of an independent effect of financial literacy on stock market participation: Those who have low financial literacy are significantly less likely to invest in stocks.

Filling the gap between planning and doing: Psychological factors involved in the successful implementation of saving intention

Previous research on the psychology of saving has tended to compare groups of savers and non-savers without controlling for their intentions. As a result, the variables that are known to covary with saving/non-saving are mainly those that covary with forming saving intentions (attitudes, motives, etc.). However, the step from saving intention to actual saving is not straightforward and may require careful planning and efforts of self-control. In this respect it is important to know the factors that impact on the process of saving intention realisation. On the basis of insights from the behavioural life-cycle hypothesis [Shefrin, H. M. & Thaler, R. H. (1992). Mental accounting, saving and self-control. In G. Lowenstein & J. Elster (Eds.) Choice over time (pp. 287–330). New York: Russell Sage Foundation] and research on intention-behaviour consistency [Gollwitzer, P. M. (1993). Goal achievement: The role of intentions. In W. Stroebe & M. Hewstone (Eds.) European Review of Social Psychology (Vol. 4, pp. 141–186). Chichester, England: Wiley], three factors are hypothesised to covary with successful implementation of saving intention: time horizon, usage of certain expenditure control techniques and perceived easiness of expenditure control. Two datasets are used in the study – a questionnaire survey conducted in Belarus in 2005 and several waves of the DNB Household Survey. In both datasets we compare two groups of respondents – those who planned to save and implemented this intention (the “plan-and-do” group) and those who planned to save, but failed to realise this plan (the “plan-in-vain” group). The data support the significance of time horizon and control techniques, while the 3rd factor – perceived easiness of expenditure control – receives mixed support.

Dutch Households’ Perceptions of Economic Growth and Inflation

This paper analysis the results of a survey on qualitative and quantitative perceptions and expectations of past, current and future macroeconomic developments among a representative household panel (DNB Household Survey). Perceptions of economic growth and inflation show a large dispersion. For the median respondents, however, the quantitative perceptions were found to be quite accurate. There is some evidence that the concept of economic growth is a more abstract notion for the general public than inflation. Those who have declared themselves more knowledgeable are also more actively involved in dealing with financial issues. The empirical evidence seems to corroborate that individuals with higher self-assessed knowledge levels are better informed indeed and have more accurate quantitative perceptions of economic growth and inflation. At the individual level there is a strong and robust correlation between expected growth and inflation for the next year and the perceptions of the current situation (rule of thumb behavior). But short-term expectations are also influenced by the views individuals hold on longer-term developments.

Nonparametric Analysis of Household Labor Supply: Goodness-of-Fit and Power of the Unitary and the Collective Model

We compare the empirical performance of unitary and collective labor supply models, using representative data from the Dutch DNB Household Survey. We conduct a nonparametric analysis that avoids the distortive impact of an erroneously specified functional form for the preferences and/or the intrahousehold bargaining process. Our analysis focuses on the goodness-of-fit of the two behavioral models. To guarantee a fair comparison, we complement this goodness-of-fit analysis with a power analysis. Our results strongly favor the collective approach to modeling the behavior of multi-person households.

And the winner is... An empirical evaluation of unitary and collective labour supply models

An empirical evaluation is presented of two competing flexible labour supply models. The first is a standard unitary model, while the second is based on the collective approach to household behaviour. The evaluation focuses on the testing of the model’s? theoretical implications and on their ability to identify structural information, like preferences and the intrahousehold allocation process. Models are applied to Dutch microdata from the DNB Household Survey. The unitary model cannot be rejected for male and female singles, while it is rejected for a sample of couples. The alternative collective model cannot be rejected for the same sample, allowing identification of individual preferences and an intrahousehold sharing rule that can be used as a basis for welfare economic policy evaluations.

The effects of personality on earnings

The purpose of this paper is to investigate the influence of personality dimensions on wage settings. The study was inspired by the model proposed by Bowles, Gintis, and Osborne [American Economic Review 91 (2001) 155], which shows how psychological characteristics may be rewarded or punished in the labour market due to a so-called incentive-enhancing property. Additionally, two meta-studies show that there are robust relationships between some personality dimensions and productivity [Barrick & Mount, Personnel Psychology 44 (1991) 1; Salgado, Journal of Applied Psychology 82 (1997) 30]. We used data from the DNB Household Survey (DHS) to test the extent to which certain personality dimensions are rewarded in the labour market and, therefore, contribute towards explaining the large unexplained variance in earnings. We also consider the possibility of gender-specific returns for personality in the wage setting. The DHS provides individual labour market details as well as measures of the Big Five personality factors (‘extraversion’, ‘agreeableness’, ‘conscientiousness’, ‘emotional stability’ and ‘autonomy’) from a large sample of the Dutch population. We find that emotional stability is positively associated with the wage of both women and men, while agreeableness is significantly associated with lower wages for women. Men are rewarded for autonomy as tenure increases, while conscientiousness tends to be rewarded at the beginning of an employment relationship. Finally, we find that the economic returns of the personality factors in wage determination vary between educational groups. The implications of this study are discussed.