Cognitive Reflection and Social Proof: Navigating Complex Tax Incentives for Retirement Savings

As the population ages, the urgency to ensure financial security in retirement intensifies. Governments have introduced tax incentives to promote retirement savings, but their complexity could pose challenges. Navigating these complex tax incentives often requires both cognitive reflections, the ability to resist impulsive answers and consider an issue thoughtfully, and social proof, the influence of others' endorsements on one's decisions. This study investigates the roles of these factors on the utilization of intricate tax incentives designed for retirement savings. We conduct a survey-based experiment on Thai taxpayers with varied complexity rules and framing message scenarios. Our findings indicate that individuals with higher Cognitive Reflection Test (CRT) scores are more likely to select complex tax incentives. We further illustrate that cognitive reflection has a more substantial impact on the decision to engage in a complex tax incentive than social proof. This highlights the importance of intrinsic cognitive abilities in navigating complex financial decisions. We also establish that the influence of social proof is particularly significant among individuals with lower cognitive reflection scores, signifying a nuanced interplay between individual cognitive abilities and social influences. Our findings highlight the importance of accounting for cognitive abilities and social proof dynamics when crafting retirement saving incentives.