What will your life be like 25 years from now? It’s difficult to picture a time that’s so far off and subject to so many variables. Yet, that’s precisely what clients are asked to do as they plan for a retirement that may last a third of their lives or more.
The truth is there’s often a great divide between the way clients live today and the future they hope to enjoy.
Using virtual-reality technology, Stanford University professor Daniel Goldstein hopes to close this gap by showing inves-tors how they will look when they are older. His purpose: transform their urge to spend today into a willingness to save for tomorrow.
Goldstein and other researchers at Stanford are tapping into what is called the “Proteus effect” — after the shape-changing god of Greek mythology. They maintain that the effect of appearance on behaviour carries over from the virtual world to the real one.
To prove their case, they placed study participants in an immersive, virtual reality environment in which participants could view themselves in a virtual mirror. Half of the participants saw digital representations of their current selves in the mirror, while the other half saw age-morphed versions.
Each participant was then asked to allocate a windfall among four options: buy a gift “for someone special”; invest in a retirement fund; pay for a “fun and extravagant occasion”; and put the money in a chequing account.
When it came to directing money toward the retirement account, those who saw their elderly avatars reported they would save twice as much as those who didn’t.
Goldstein and Hal Ersner-Hershfield, who’s with the Kellogg School of Management, are currently testing a web-based tool that uses similar software to change the appearance of photos of young investors as they make choices about saving for retirement.
Goldstein and Ersner-Hersh-field hope to increase the vividness of trade-offs between current and future consumption by showing participants images of both their current and age-morphed selves with facial expressions that shift in accordance with a selected saving rate.
As users move the slider to the left along the screen’s trackbar, which indicates earning more now and saving less, a photo of them as a young person appears happier, while a computer-aged representation of them as an older person begins to frown. Save more, however, by sliding to the right, and the older version of themselves begins to smile.
In the future, this tool may become more wide-ranging, showing other visual representations of potential outcomes, such as comparing the home of a retiree who saved successfully to one who didn’t.
While the focus up to now has been on financial decisions involving saving, the findings may translate to retirement income decision-making as well. For example, the tool might be modified to address retirement cash-flow needs by helping prospective retirees “see” themselves later in life, while also including actual data about the satisfaction of those who chose various types of income solutions in retirement.
The University of Michigan’s Constantijn Panis, for instance, has found that retirees who use guaranteed income products to cover more of their expenditures are generally happier than those who don’t. What’s more, these individuals maintain their level of happiness over time. IE