Simplification and Saving

John Beshears, James Jinwoo Choi, David Laibson () and Brigitte C. Madrian

No 12659, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D12 D14 D83 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm
Date: 2006-10
Note: AG LS PE
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