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Simplification and saving

Author Info

Listed author(s):
  • Beshears, John
  • Choi, James J.
  • Laibson, David
  • Madrian, Brigitte C.

Abstract

The daunting complexity of important financial decisions can lead to procrastination. We evaluate a low-cost intervention that substantially simplifies the retirement savings plan participation decision. Individuals received an opportunity to enroll in a retirement savings plan at a pre-selected contribution rate and asset allocation, allowing them to collapse a multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10–20 percentage points. We find that a similar intervention can be used to increase contribution rates among employees who are already participating in a savings plan.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167268112000583
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 95 (2013)
Issue (Month): C ()
Pages: 130-145

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Handle: RePEc:eee:jeborg:v:95:y:2013:i:c:p:130-145
DOI: 10.1016/j.jebo.2012.03.007
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

Keywords: Retirement savings; Simplification; Procrastination; Behavioral economics;

Other versions of this item:

Find related papers by JEL classification:
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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  1. James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)," Levine's Bibliography 122247000000000966, UCLA Department of Economics.
  2. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
  3. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
  4. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "For Better or for Worse: Default Effects and 401(k) Savings Behavior," NBER Chapters,in: Perspectives on the Economics of Aging, pages 81-126 National Bureau of Economic Research, Inc.
  5. Shlomo Benartzi & Richard Thaler, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
  6. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2009. "The Role of Simplification and Information in College Decisions: Results from the H&R Block FAFSA Experiment," NBER Working Papers 15361, National Bureau of Economic Research, Inc.
  7. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
  8. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," NBER Working Papers 8655, National Bureau of Economic Research, Inc.
  9. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
  10. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1639-1674.
  11. Justine S. Hastings & Jeffrey M. Weinstein, 2008. "Information, School Choice, and Academic Achievement: Evidence from Two Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1373-1414.
  12. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
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