Article | Journal of Economic Behavior & Organization | November 2013

Simplification and Saving

by John Beshears, James J. Choi, David Laibson and Brigitte C. Madrian

Abstract

The daunting complexity of important financial decisions can lead to procrastination. We evaluate a low-cost intervention that substantially simplifies the retirement savings plan participation decision. Individuals received an opportunity to enroll in a retirement savings plan at a pre-selected contribution rate and asset allocation, allowing them to collapse a multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10 to 20 percentage points. We find that a similar intervention can be used to increase contribution rates among employees who are already participating in a savings plan.

Keywords: retirement savings; Simplification; procrastination; Behavioral economics; Saving; Motivation and Incentives; Retirement;

Citation:

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "Simplification and Saving." Special Issue on Behavioral Consumer Finance. Journal of Economic Behavior & Organization 95 (November 2013): 130–145.