DISCOUNTING, COGNITION, AND FINANCIAL AWARENESS: NEW EVIDENCE FROM A CHANGE IN THE MILITARY RETIREMENT SYSTEM

The choice given military personnel between an immediate cash payment of $30,000 or a more generous retirement pension permits us to estimate individuals' personal discount rates (PDRs). The resulting PDRs, about 7% for enlisted personnel and 2%-4.3% for officers, are precise and are correlated with a variety of other financial behaviors. The PDR is negatively related to educational attainment and the Armed Forces Qualification Test, but cognition seems to operate through channels other than being better informed; better-informed individuals were not always measured to be more patient. (JEL D91, D14)