the importance of default options for retirement saving.pptVIP

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2016-03-05 发布于广东
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the importance of default options for retirement saving.ppt

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the importance of default options for retirement saving

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Information and disclosure generally don’t do much on their own Example New York City calorie disclosure (Elbel et al 2009) * Before After NYC (intervention city) 825 846 Newark (control city) 823 826 Calories from fast food purchases Conclusion Defaults are not neutral for four key reasons: Investors are not financially literate Investors display an endorsement effect Investors respond adversely to complexity Investors are prone to procrastinate There may be other reasons: loss aversion? Employers/institutions will influence savings outcomes through the choice of defaults (whether the institution wants to do this or not) Society and firms should pick defaults carefully Stop here * * 3. Optimal Defaults – public policy Mechanism design problem in which policy makers set a default for agents with present bias (Carrol, Choi, Laibson, Madrian and Metrick 2007) Defaults are sticky for three reasons Cost of opting-out of the default Cost varies over time ? option value of waiting Present-biased preferences ? procrastination * Basic set-up of problem Specify behavioral model of households Flow cost of staying at the default Effort cost of opting-out of the default Effort cost varies over time ? option value of waiting to leave the default Present-biased preferences ? procrastination Specify (dynamically consistent) social welfare function of planner (e.g., set β=1) Planner picks default to optimize social welfare function * Optimal ‘Defaults’ Two classes of optimal defaults Automatic enrollment Optimal when employees have relatively homogeneous savings preferences (e.g. match threshold) and relatively little propensity to procrastinate “Active Decision” — require individuals to make a decision (eliminate the option to passively accept a default) Optimal when employees have relatively heterogeneous savings preferences and relatively strong tendency to proc