Optimal defaults and active decisions
By: James J. Choi ... [et al.].
Contributors: Choi, James J.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11074; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11074.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Saving and investment -- Decision making.; Finance, Personal -- Decision making.; 401(k) plans.
Description: "Defaults can have a dramatic influence on consumer decisions.  We identify an overlooked but practical alternative to defaults: requiring individuals to make an explicit choice for themselves.  We study such "active decisions" in the context of 401(k) saving.  We find that compelling new hires to make active decisions about 401(k) enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt-in enrollment procedure, producing a savings distribution three months after hire that would take three years to achieve under standard enrollment.  We also present a model of 401(k) enrollment and derive conditions under which the optimal enrollment regime is automatic enrollment (i.e., default enrollment), standard enrollment (i.e., default non-enrollment), or active decisions (i.e., no default and compulsory choice).  Active decisions are optimal when consumers have a strong propensity to procrastinate and savings preferences are highly hetergeneous.  Naive beliefs about future time-inconsistency strengthen the normative appeal of the active decision enrollment regime"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/28/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.