NB22-15: The Role of Stock-Flow Reasoning in Understanding the Social Security Trust Fund

The Social Security trust fund represents the accumulated surplus that remains from income paid into the system after benefits have been paid out. Current projections are that the trust fund will be depleted by 2035 (2020 OASDI Trustees Report). Communicating the implications of these projections is critical but prone to inducing misleading inferences. Media headlines often emphasize the balance running to zero, leading non-experts to arrive at the erroneous conclusion that Social Security benefits will dry up too. We argue that this faulty reasoning may result from a “stock-flow” reasoning error. Here, “stocks” refer to the cumulative amount of some resource (i.e., the trust fund balance), whereas “flows” refer to the change in that resource over some defined period of time (i.e., taxes paid in and benefits paid out). Converting between stocks and flows is a difficult task, and even highly educated people have great difficulty doing so (e.g., Cronin, Gonzalez, & Sterman 2009). Our own work has found that presentation of stocks versus flows can lead to opposite evaluations and forecasts (Goldstein, Hershfield, & Benartzi 2016; Spiller, Reinholtz, & Maglio 2020). These dual representations of the trust fund are illustrated in SSA communications, in which some depictions show the balance of the trust fund (i.e., the stock) and some show the change in inflows and outflows over time (i.e., the flows).
Prior research on stock-flow reasoning errors has the potential to enhance our understanding of perceptions of the Social Security trust fund. Reasoning errors arising from stock vs. flow presentations are stubbornly persistent, suggesting education is unlikely to be an effective scalable solution. Instead, we propose that alternative presentations, such as deemphasizing the trust fund balance and instead emphasizing the projection of paid benefits may help to lead to more accurate judgments and inferences based on communications. To test these possibilities, we will experimentally vary the presentation format and observe how key metrics respond. We expect that relative out-flow presentation may lead to better-calibrated benefit expectations, which are important for beneficiaries, while stock presentation may lead to better-calibrated forecasts of when the trust fund will reach zero, an important milestone for policy makers.
We anticipate this project will result in an academic report based on the results of multiple studies. Our approach will assess how key measures (expected benefits, fund forecasts) are affected by various presentation formats (stocks, flows, and relative proportions), including testing the current formats. We hope to test these formats with populations that include both potential beneficiaries and media consumers.