EconPapers    
Economics at your fingertips  
 

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

Joshua Blumenstock, Michael Callen and Tarek Ghani

No 12142, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We report on an experiment examining why default options impact behavior. Working with one of the largest private firms in Afghanistan, we randomly assigned each of 949 employees to different variants of a new default savings account. Employees assigned a default contribution rate of 5% are 40 percentage points more likely to contribute than employees assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. Our design permits us to rule out several common explanations for default effects, including employer endorsement, employee inattention, and a lack of awareness about how to switch. Instead, we find evidence that the default effect is driven largely by a combination of present-biased preferences and the cognitive cost of calculating alternate savings scenarios. Default assignment also causes employees to develop savings habits that outlive our experiment: they are more likely to believe that savings is important, less likely to report being too financially constrained to save, and more likely to make an active decision to save at the end of our trial.

Keywords: Behavioral Models; Defaults savings; Digital Finance; Mobile Money; peer effects (search for similar items in EconPapers)
JEL-codes: D14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa and nep-exp
Date: 2017-07
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12142 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan (2018) Downloads
Working Paper: Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan (2017) Downloads
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12142

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=12142

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-03-31
Handle: RePEc:cpr:ceprdp:12142