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Optimal Default Policies in Defined Contribution Pension Plans when Employees are Biased

Author

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  • Asen Ivanov

    (Queen Mary University of London)

Abstract

This paper analyses a model in which employees are biased in their perception of their optimal contribution rates or asset allocations in defined contribution pension plans. The optimal default is characterised as a function of the parameters. It is shown that, for some values of the parameters, forcing employees to actively decide is the optimal default policy. The total loss in the population at the optimal default policy can be non-monotone in the parameters in counterintuitive ways.

Suggested Citation

  • Asen Ivanov, 2018. "Optimal Default Policies in Defined Contribution Pension Plans when Employees are Biased," Working Papers 858, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:858
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2018/wp858.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    optimal defaults; libertarian paternalism; nudging; pension plan design;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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