New York, December 10 – Are stocks safe for long-term
investors? How do people make savings decisions in their 401(k) plans? These
are two of the important issues addressed by this year’s winners of the
annual Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong
Financial Security.
The seventh annual award, which is administered by the TIAA-CREF Institute,
continues the emphasis placed by the judges and the Institute on original work
with practical implications for individuals and financial planners.
The two sets of authors who share this year’s prize are John Y. Campbell
and Luis M. Viceira for their book, "Strategic Asset Allocation: Portfolio
Choice for Long-term Investors" (Oxford University Press); and Brigitte
C. Madrian and Dennis F. Shea, for their article, "The Power of Suggestion:
Inertia in 401(k) Participation and Savings Behavior" in the November
2001 Quarterly Journal of Economics. The four winning authors will
each receive an equal $7,500 share of the $30,000 cash prize.
Messrs. Campbell and Viceira provide a solid theoretical foundation for practical
asset allocation advice based on modern analytical and numerical methods. They
show how rigorous financial theory and econometrics can be applied to produce
real-world prescriptions, and in doing so, they justify—but also clarify
and qualify—conventional investing wisdom (for example, that stocks are
a safer investment over the long term). Their book makes a strong argument that
a solid theoretical framework is crucial for helping investors make the right
investment choices, noting that, "Traditional financial planning advice...is
rarely accompanied by an explicit statement of the beliefs that support the
advice. Investors are likely to make better decisions if they understand what
they must believe about the world in order to accept a recommended portfolio."
"The Power of Suggestion: Inertia in 401(k) Participation and Savings
Behavior" demonstrates that the automatic enrollment of employees in a
401(k) plan can exert a strong influence over their saving and investment choices.
Under automatic enrollment, employees must choose to opt out of, rather than
opt in to, a voluntary savings plan such as a 401(k). They still can control
their portfolio allocation and savings rates. The research shows that after
the introduction of automatic enrollment, many new employees simply accept the
automatic or "default" saving and portfolio options established by
the plan administrators, rather than making another, perhaps better, choice.
Madrian and Shea’s research shows that such automatic aspects of retirement
plans could have a tremendous impact on the distribution of retirement savings
available to individuals.
A certificate of excellence was awarded to Kent Smetters for his article: "Controlling
the Cost of Minimum Benefit Guarantees in Public Pension Conversions,"
which appeared in the Journal of Pension Economics and Finance in March
2002. Professor Smetters’ research clarifies and quantifies the sizable
risks that public pension systems assume when they make minimum-benefit guarantees,
and the article provides some insight as to how these costs can potentially
be reduced.
John Y. Campbell is Otto Eckstein Professor of Applied Economics, Department
of Economics, Harvard University, and Luis M. Viceira is an Assistant Professor
of Finance, Harvard Graduate School of Business Administration. Brigitte C.
Madrian is Associate Professor of Economics, University of Chicago, and Dennis
F. Shea is the head of executive compensation strategy and client services,
Aetna, Inc. Kent Smetters is Assistant Professor of Insurance and Risk Management,
The Wharton School, University of Pennsylvania.
The Paul A. Samuelson award will be presented at the Allied Social Science
Associations annual meeting at the Washington Grand Hyatt on January 3, 2003.
The winner of the award is determined by an independent panel of judges, and
the competition is administered by the TIAA-CREF Institute, the research and
educational arm of the TIAA-CREF organization. The award was named after Nobel
Prize winner Paul Samuelson in honor of his achievements in the field of economics,
as well as for his service as a CREF trustee from 1974-85.
Six noted scholars served as judges for the 2002 award: Dora Costa, Associate
Professor, Massachusetts Institute of Technology; Alan L. Gustman, Loren M.
Berry Professor of Economics, Department of Economics, Dartmouth College; Mark
V. Pauly, Bendheim Professor of Health Care Systems, The Wharton School, University
of Pennsylvania; Robert W. Vishny, Eric J. Gleacher Distinguished Service Professor
of Finance, Graduate School of Business, University of Chicago; David A. Wise,
John F. Stambaugh Professor of Political Economy, John F. Kennedy School of
Government, Harvard University; and Stephen P. Zeldes, Benjamin Rosen Professor
of Economics and Finance, Graduate School of Business, Columbia University.
TIAA-CREF is the premier pension system for people employed in education and
research in the U.S., serving approximately 15,000 institutions and 2.5 million
participants. The organization also serves the general public with mutual funds,
annuities, IRAs, insurance, and trust services, and is the leading manager of
state-sponsored college saving programs.
Media contact: Patrick Connor, 212 916-5769; email: pconnor@tiaa-cref.org
