Passive Decisions and Potent Defaults

James Jinwoo Choi, David Laibson (), Brigitte C. Madrian and Andrew Metrick ()

No 9917, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Default options have an enormous impact on household choices.' Defaults matter because opting out of a default is costly and these costs change over time, generating an option value of waiting. In addition, people have a tendency to procrastinate. We develop a theory of optimal defaults based on these considerations. We find that it is sometimes optimal to set extreme defaults, which are far away from the mean optimal savings rate. A default that is far away from a consumer's optimal savings rate may make that consumer better off since such a bad' default will lead procrastinating consumers to more quickly opt out of the default. We calibrate our model and use it to calculate optimal defaults for employees at four different companies. Our work suggests that optimal defaults are likely to be at one of three savings rates: the minimum savings rate (i.e., 0%), the match threshold (typically 5% or 6%), or the maximal savings rate.

JEL-codes: D1 (search for similar items in EconPapers)
Date: Written
Note: EFG AG PE
View citations in EconPapers

Published relationship to a non-chapter. This should not happen. Please contact NBER.

Downloads: (external link)
http://www.nber.org/papers/w9917.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Chapter: Passive Decisions and Potent Defaults (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:9917

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9917
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().