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Simplification and Saving

  • John Beshears
  • James Choi
  • David Laibson
  • Brigitte Madrian

Many financial decisions that individuals face are complicated and daunting for those who are not financial experts. One important consequence of this complexity is that individuals procrastinate in making these decisions. In this paper, we evaluate a low-cost intervention designed to simplify the retirement saving decision. Individuals received the opportunity to enroll in their workplace savings plan at a pre-selected contribution rate and asset allocation. By collapsing a multidimensional set of options into a binary choice between the status quo and the pre-selected alternative, this intervention increases participation rates by 10 to 20 percentage points among affected employees. We find that similar mechanisms can be used to increase contribution rates among employees who are already participating.

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File URL: http://icfpub.som.yale.edu/publications/2392
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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2392.

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Date of creation: 01 Jan 2008
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Handle: RePEc:ysm:somwrk:amz2392
Contact details of provider: Web page: http://icf.som.yale.edu/

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  1. 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 S164-S187, February.
  2. Richard Thaler & Shlomo Benartzi, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
  3. 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.
  4. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," NBER Working Papers 11074, National Bureau of Economic Research, Inc.
  5. Justine S. Hastings & Jeffrey M. Weinstein, 2008. "Information, School Choice, and Academic Achievement: Evidence from Two Experiments," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1373-1414, November.
  6. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
  7. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers 257, Northwestern University/University of Chicago Joint Center for Poverty Research.
  8. Choi, James & Madrian, Brigitte & Laibson, David I., 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Scholarly Articles 4686775, Harvard University Department of Economics.
  9. 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.
  10. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
  11. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  12. 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.
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