A General Solution to the Problem of Setting Optimal Default Options

B. Douglas Bernheim and Jonas Mueller-Gastell

AEA Papers and Proceedings, 2022, vol. 112, 131-35

Abstract: We examine the problem of setting optimal default options such as passively selected contribution rates in employee-directed pension plans. Existing results suggest that a simple rule of thumb, opt-out minimization, is optimal under special conditions, but this result is fragile, and the literature does not provide a general analytic solution. In a recent paper, we demonstrated with considerable generality that weighted opt-out minimization is approximately optimal, and we identified surprisingly broad conditions under which unweighted opt-out minimization is approximately optimal. Here we provide concise intuition for these results.

JEL-codes: C61 J32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/pandp.20221019

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