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A General Solution to the Problem of Setting Optimal Default Options

Author

Listed:
  • B. Douglas Bernheim
  • Jonas Mueller-Gastell

Abstract

We examine the problem of setting optimal default options such as passively selected contribution rates in employee-directed pension plans. Existing results suggest that a simple rule of thumb, opt-out minimization, is optimal under special conditions, but this result is fragile, and the literature does not provide a general analytic solution. In a recent paper, we demonstrated with considerable generality that weighted opt-out minimization is approximately optimal, and we identified surprisingly broad conditions under which unweighted opt-out minimization is approximately optimal. Here we provide concise intuition for these results.

Suggested Citation

  • B. Douglas Bernheim & Jonas Mueller-Gastell, 2022. "A General Solution to the Problem of Setting Optimal Default Options," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 131-135, May.
    • Handle: RePEc:aea:apandp:v:112:y:2022:p:131-35
    DOI: 10.1257/pandp.20221019
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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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