John Beshears

Assistant Professor of Business Administration

John Beshears is an assistant professor of business administration in the Negotiation, Organizations & Markets Unit, teaching the Negotiation course to second-year MBA students. He is also a faculty research fellow at the National Bureau of Economic Research. Before joining HBS, he was an assistant professor of finance at the Stanford Graduate School of Business.

Professor Beshears’s primary research area is behavioral economics, the field that combines insights from psychology and economics to explore individual decision making and market outcomes. He focuses on understanding how the financial decisions of households and firms are influenced by the institutional environment in which choices are made. In recent work, he has studied enrollment and portfolio decisions in retirement savings plans, health-care choices, and the performance of corporate alliances among oil and gas firms.

John Beshears is an assistant professor of business administration in the Negotiation, Organizations & Markets Unit, teaching the Negotiation course to second-year MBA students. He is also a faculty research fellow at the National Bureau of Economic Research. Before joining HBS, he was an assistant professor of finance at the Stanford Graduate School of Business.

Professor Beshears’s primary research area is behavioral economics, the field that combines insights from psychology and economics to explore individual decision making and market outcomes. He focuses on understanding how the financial decisions of households and firms are influenced by the institutional environment in which choices are made. In recent work, he has studied enrollment and portfolio decisions in retirement savings plans, health-care choices, and the performance of corporate alliances among oil and gas firms.

The National Institutes of Health, Social Security Administration, FINRA Investor Education Foundation, Russell Sage Foundation, TIAA-CREF Institute, and National Science Foundation have supported Professor Beshears’s research. His work has been published in journals including the Journal of Financial Economics, Journal of Public Economics, Journal of Economic Behavior & Organization, and Journal of Health Economics; it has also been featured in The Economist, The Wall Street Journal, BusinessWeek, and Time.

After earning his Ph.D. in business economics at HBS, Professor Beshears was a postdoctoral fellow at the National Bureau of Economic Research. He received an AB in economics from Harvard University.

Journal Articles

  1. What Makes Annuitization More Appealing?

    We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an "all or nothing" decision. Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that highlight flexibility, control, and investment significantly reduce annuitization. A majority of respondents prefer to receive an extra "bonus" payment during one month of the year that is funded by slightly lower payments in the remaining months. Concerns about later-life income, spending flexibility, and counterparty risk are the most important self-reported motives that influence the annuitization decision.

    Keywords: annuity; pension; retirement income; framing; Annuities; Retirement;

    Citation:

    Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Stephen P. Zeldes. "What Makes Annuitization More Appealing?" Special Issue on NBER Pensions. Journal of Public Economics 116 (August 2014): 2–16. View Details
  2. Simplification and Saving

    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. View Details
  3. The Performance of Corporate Alliances: Evidence from Oil and Gas Drilling in the Gulf of Mexico

    I use data on oil and gas drilling in the Gulf of Mexico to measure how a corporate alliance—a group of firms that jointly develops an offshore tract—performs relative to a solo firm. I employ a regression discontinuity strategy based on bids in first-price sealed-bid auctions for the rights to develop leases. By focusing on leases where one organizational form narrowly outbids the other, I measure drilling outcomes while controlling for the endogenous matching of projects and organizational forms. Solo firm leases are less profitable than alliance leases because alliance members combine their information and expertise.

    Keywords: organizational form; corporate alliances; oil and gas production; lease auctions; regression discontinuity; Alliances; Organizational Structure; Auctions; Performance; Energy Sources; Leasing; Energy Industry;

    Citation:

    Beshears, John. "The Performance of Corporate Alliances: Evidence from Oil and Gas Drilling in the Gulf of Mexico." Journal of Financial Economics 110, no. 2 (November 2013): 324–346. View Details
  4. Testimonials Do Not Convert Patients from Brand to Generic Medication

    Objectives: To assess whether the addition of a peer testimonial to an informational mailing increases conversion rates from brand name prescription medications to lower-cost therapeutic equivalents, and whether the testimonial's efficacy increases when information is added about an affiliation the quoted individual shares with the recipient.

    Research Design and Methods: A total of 5,498 union members were randomly assigned to receive 1 of 3 different informational letters: 1 without a testimonial (No Testimonial Group), 1 with a testimonial from a person whose shared union affiliation with the recipient was not disclosed (Unaffiliated Testimonial Group), and 1 with a testimonial from a person whose shared union affiliation with the recipient was disclosed (Affiliated Testimonial Group).

    Results: The conversion rate for the No Testimonial Group was 12.2%, which is higher than the Unaffiliated Testimonial Group rate of 11.3% and the Affiliated Testimonial Group rate of 11.7%. The differences between the groups are not statistically significant.

    Conclusions: Short peer testimonials do not increase the impact of a mailed communication on conversion rates to lower-cost, therapeutically equivalent medications, even when the testimonial is presented as coming from a more socially proximate peer.

    Keywords: testimonial; peer information; social proximity; communication; generic medication; Familiarity; Marketing Communications; Decision Choices and Conditions; Identity; Health Care and Treatment; Marketing Reference Programs; Power and Influence; Brands and Branding; Health Industry;

    Citation:

    Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Gwendolyn Reynolds. "Testimonials Do Not Convert Patients from Brand to Generic Medication." American Journal of Managed Care 19, no. 9 (September 2013): e314–e316. View Details
  5. Consumers' Misunderstanding of Health Insurance

    We report results from two surveys of representative samples of Americans with private health insurance. The first examines how well Americans understand, and believe they understand, traditional health insurance coverage. The second examines whether those insured under a simplified all-copay insurance plan will be more likely to engage in cost reducing behaviors relative to those insured under a traditional plan with deductibles and coinsurance and measures consumer preferences between the two plans. The surveys provide strong evidence that consumers do not understand traditional plans and would better understand a simplified plan, but weaker evidence that a simplified plan would have strong appeal to consumers or change their healthcare choices.

    Keywords: Insurance; Behavioral economics; Simplification; Insurance; Consumer Behavior; Health Care and Treatment; Cognition and Thinking; Insurance Industry; Health Industry; United States;

    Citation:

    Loewenstein, George, Joelle Y. Friedman, Barbara McGill, Sarah Ahmad, Suzanne Linck, Stacey Sinkula, John Beshears, et al. "Consumers' Misunderstanding of Health Insurance." Journal of Health Economics 32, no. 5 (Summer 2013): 850–862. View Details
  6. What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

    Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods ("fast"), while the other subjects see a version with dynamics that unfold over 50 periods ("slow"). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.

    Keywords: Forecasting and Prediction; Cognition and Thinking;

    Citation:

    Beshears, John, James J. Choi, Andreas Fuster, David Laibson, and Brigitte C. Madrian. "What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting." American Economic Review: Papers and Proceedings 103, no. 3 (May 2013): 570–574. View Details
  7. Planning Prompts as a Means of Increasing Preventive Screening Rates

    Keywords: Reminder Systems; communication; economics; Behavioral; Primary prevention; Colonoscopy; Memory; Behavior; Health Care and Treatment; Health Testing and Trials; Communication Strategy; Health Industry;

    Citation:

    Milkman, Katherine L., John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian. "Planning Prompts as a Means of Increasing Preventive Screening Rates." Preventive Medicine 56, no. 1 (January 2013): 92–93. View Details
  8. Planning Prompts as a Means of Increasing Rates of Immunization and Preventive Screening

    Citation:

    Dai, Hengchen, Katherine L. Milkman, John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian. "Planning Prompts as a Means of Increasing Rates of Immunization and Preventive Screening." Special Issue on Vaccination, Prevention, and Older Adults. Public Policy & Aging Report 22, no. 4 (2012): 16–19. View Details
  9. Using Implementation Intentions Prompts to Enhance Influenza Vaccination Rates

    We evaluate the results of a field experiment designed to measure the effect of prompts to form implementation intentions on realized behavioral outcomes. The outcome of interest is influenza vaccination receipt at free on-site clinics offered by a large firm to its employees. All employees eligible for study participation received reminder mailings that listed the times and locations of the relevant vaccination clinics. Mailings to employees randomly assigned to the treatment conditions additionally included a prompt to write down either (i) the date the employee planned to be vaccinated or (ii) the date and time the employee planned to be vaccinated. Vaccination rates increased when these implementation intentions prompts were included in the mailing. The vaccination rate among control condition employees was 33.1%. Employees who received the prompt to write down just a date had a vaccination rate 1.5 percentage points higher than the control group, a difference that is not statistically significant. Employees who received the more specific prompt to write down both a date and a time had a 4.2 percentage point higher vaccination rate, a difference that is both statistically significant and of meaningful magnitude.

    Keywords: Behavioral economics; nudge; libertarian paternalism; public health; flu shot; Behavior; Consumer Behavior; Health Care and Treatment; Cognition and Thinking;

    Citation:

    Milkman, Katherine L., John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian. "Using Implementation Intentions Prompts to Enhance Influenza Vaccination Rates." Proceedings of the National Academy of Sciences of the United States of America 108, no. 26 (June 28, 2011): 10415–10420. View Details
  10. Behavioral Economics Perspectives on Public Sector Pension Plans

    We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee's work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers' need to save for retirement in other accounts. There is also substantial heterogeneity across jurisdictions in the savings generated in primary DC plans because of differences in the level of mandatory employer and employee contributions. One notable difference between public and private sector DC plans is that public sector primary DC plans are characterized by required employee or employer contributions (or both), whereas private sector plans largely feature voluntary employee contributions that are supplemented by an employer match. We conclude by applying lessons from savings behavior in private sector savings plans to the design of public sector plans.

    Keywords: Equality and Inequality; Public Sector; Retirement; Private Sector; Compensation and Benefits; United States;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "Behavioral Economics Perspectives on Public Sector Pension Plans." Journal of Pension Economics & Finance 10, no. 2 (April 2011): 315–336. View Details
  11. Do Sell-Side Stock Analysts Exhibit Escalation of Commitment?

    This paper presents evidence that when an analyst makes an out-of-consensus forecast of a company's quarterly earnings that turns out to be incorrect, she escalates her commitment to maintaining an out-of-consensus view on the company. Relative to an analyst who was close to the consensus, the out-of-consensus analyst adjusts her forecasts for the current fiscal year's earnings less in the direction of the quarterly earnings surprise. On average, this type of updating behavior reduces forecasting accuracy, so it does not seem to reflect superior private information. Further empirical results suggest that analysts do not have financial incentives to stand by extreme stock calls in the face of contradictory evidence. Managerial and financial market implications are discussed.

    Keywords: escalation of commitment; stock market; updating; Behavioral economics; Motivation and Incentives; Behavior; Consumer Behavior; Financial Markets; Forecasting and Prediction;

    Citation:

    Beshears, John, and Katherine L. Milkman. "Do Sell-Side Stock Analysts Exhibit Escalation of Commitment?" Journal of Economic Behavior & Organization 77, no. 3 (March 2011): 304–317. View Details
  12. Mental Accounting and Small Windfalls: Evidence from an Online Grocer

    We study the effect of small windfalls on consumer spending decisions by comparing the purchases online grocery customers make when redeeming $10-off coupons with the purchases they make without coupons. Controlling for customer fixed effects and other variables, we find that grocery spending increases by $1.59 when a $10-off coupon is redeemed. The extra spending associated with coupon redemption is focused on groceries that a customer does not typically buy. These results are consistent with the theory of mental accounting but are not consistent with the standard permanent income or lifecycle theory of consumption. While the hypotheses we test are motivated by mental accounting, we also discuss some alternative psychological explanations for our findings.

    Keywords: mental accounting; windfalls; marginal propensity to consume; coupons; Marketing Communications; Consumer Behavior; Accounting; Cognition and Thinking; Retail Industry;

    Citation:

    Beshears, John, and Katherine L. Milkman. "Mental Accounting and Small Windfalls: Evidence from an Online Grocer." Journal of Economic Behavior & Organization 71, no. 2 (August 2009): 384–394. View Details
  13. Modeling Expert Opinions on Food Healthfulness: A Nutrition Metric

    Research over the last several decades indicates the failure of existing nutritional labels to substantially improve the healthiness of consumers' food and beverage choices. The difficulty for policy-makers is to encapsulate a wide body of scientific knowledge in a labeling scheme that is comprehensible to the average shopper. Here, we describe our method of developing a nutrition metric to fill this void.

    Methods

    We asked leading nutrition experts to rate the healthiness of 205 sample foods and beverages, and after verifying the similarity of their responses, we generated a model that calculates the expected average healthiness rating that experts would give to any other product based on its nutrient content.

    Results

    The form of the model is a linear regression that places weights on 12 nutritional components (total fat, saturated fat, cholesterol, sodium, total carbohydrate, dietary fiber, sugars, protein, vitamin A, vitamin C, calcium, and iron) to predict the average healthiness rating that experts would give to any food or beverage. We provide sample predictions for other items in our database.

    Conclusions

    Major benefits of the model include its basis in expert judgment, its straightforward application, the flexibility of transforming its output ratings to any linear scale, and its ease of interpretation. This metric serves the purpose of distilling expert knowledge into a form usable by consumers so that they are empowered to make healthier decisions.

    Keywords: Judgments; Food; Nutrition; Labels; Knowledge Use and Leverage; Demand and Consumers; Measurement and Metrics; Mathematical Methods;

    Citation:

    Martin, Jolie M., John Beshears, Katherine L. Milkman, Max H. Bazerman, and Lisa Sutherland. "Modeling Expert Opinions on Food Healthfulness: A Nutrition Metric." Journal of the American Dietetic Association 109, no. 6 (June 2009): 1088–1091. View Details
  14. How Are Preferences Revealed?

    Revealed preferences are tastes that rationalize an economic agent's observed actions. Normative preferences represent the agent's actual interests. It sometimes makes sense to assume that revealed preferences are identical to normative preferences. But there are many cases where this assumption is violated. We identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences: passive choice, complexity, limited personal experience, third-party marketing, and intertemporal choice. We then discuss six approaches that jointly contribute to the identification of normative preferences: structural estimation, active decisions, asymptotic choice, aggregated revealed preferences, reported preferences, and informed preferences. Each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.

    Keywords: Consumer Behavior; Attitudes; Microeconomics;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "How Are Preferences Revealed?" Special Issue on Happiness and Public Economics. Journal of Public Economics 92, nos. 8-9 (June 2008): 1787–1794. View Details
  15. Early Decisions: A Regulatory Framework

    We describe a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing—which is what Early Decisions enable—is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

    Keywords: hyperbolic discounting; self-control; commitment; taxation; Consumer Behavior; Taxation; Attitudes;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "Early Decisions: A Regulatory Framework." Swedish Economic Policy Review 12, no. 2 (2005): 41–60. View Details

Book Chapters

  1. Who Uses the Roth 401(k), and How Do They Use It?

    Using administrative data from twelve companies that added a Roth 401(k) option between 2006 and 2010, we describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66% of employee contributions go to the Roth, and half of employees contribute to both the Roth and another 401(k) account, consistent with a tax diversification motive. Roth usage is decreasing in age, less likely among women, and only weakly correlated with salary and tenure once we control for other employee characteristics.

    Keywords: Retirement; Investment Funds; United States;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "Who Uses the Roth 401(k), and How Do They Use It?" Chap. 12 in Discoveries in the Economics of Aging, edited by David A. Wise. Chicago: University of Chicago Press, 2014. View Details
  2. The Availability and Utilization of 401(k) Loans

    We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.

    Keywords: Decision Choices and Conditions; Personal Finance; Retirement; Financing and Loans; Microeconomics;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "The Availability and Utilization of 401(k) Loans." In Investigations in the Economics of Aging, edited by David A. Wise, 145–172. Chicago: University of Chicago Press, 2012. View Details
  3. How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?

    We use an experiment to estimate the effect of the SEC's Summary Prospectus, which simplifies mutual fund disclosure. Our subjects chose an equity portfolio and a bond portfolio. Subjects received either statutory prospectuses or Summary Prospectuses. We find no evidence that the Summary Prospectus affects portfolio choices. Our experiment sheds new light on the scope of investor confusion about sales loads. Even with a one month investment horizon, subjects do not avoid loads. Subjects are either confused about loads, overlook them, or believe their chosen portfolio has an annualized log return that is 24 percentage points higher than the loadminimizing portfolio.

    Keywords: Information; Corporate Disclosure; Decision Choices and Conditions; Consumer Behavior; Retirement; Personal Finance; Investment Funds; Microeconomics;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?" In Explorations in the Economics of Aging, edited by David A. Wise, 75–96. Chicago: University of Chicago Press, 2011. View Details
  4. Public Policy and Saving for Retirement: The 'Autosave' Features of the Pension Protection Act of 2006

    Citation:

    Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Brian Weller. "Public Policy and Saving for Retirement: The 'Autosave' Features of the Pension Protection Act of 2006." In Better Living through Economics, edited by John J. Siegfried, 274–290. Cambridge: Harvard University Press, 2010. View Details
  5. The Impact of Employer Matching on Savings Plan Participation under Automatic Enrollment

    Existing research has documented the large impact that automatic enrollment has on savings plan participation. All the companies examined in these studies, however, have combined automatic enrollment with an employer match. This raises a question about how effective automatic enrollment would be without a direct financial inducement not to opt out of participation. This paper's results suggest that the match has only a modest impact on opt-out rates. We estimate that moving from a typical matching structure—a match of 50% up to 6% of pay contributed—to no match would reduce participation under automatic enrollment at six months after plan eligibility by 5 to 11 percentage points. Our analysis includes a firm that switched from a match to a noncontingent employer contribution. This firm's experience suggests that non-contingent employer contributions only weakly crowd out employee participation.

    Keywords: Motivation and Incentives; Consumer Behavior; Personal Finance; Investment Funds; Microeconomics; Compensation and Benefits;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "The Impact of Employer Matching on Savings Plan Participation under Automatic Enrollment." In Research Findings in the Economics of Aging, edited by David A. Wise, 311–327. Chicago: University of Chicago Press, 2010. View Details
  6. The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States

    This paper summarizes the empirical evidence on how defaults impact retirement savings outcomes. After outlining the salient features of the various sources of retirement income in the U.S., the paper presents the empirical evidence on how defaults impact retirement savings outcomes at all stages of the savings lifecycle, including savings plan participation, savings rates, asset allocation, and post-retirement savings distributions. The paper then discusses why defaults have such a tremendous impact on savings outcomes. The paper concludes with a discussion of the role of public policy towards retirement saving when defaults matter.

    Keywords: Saving; Financial Condition; Retirement; Investment Funds; Microeconomics; Outcome or Result; Government and Politics; Financial Institutions; Macroeconomics; United States;

    Citation:

    Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States." In Lessons from Pension Reform in the Americas, edited by Stephen J. Kay and Tapen Sinha, 59–87. Oxford: Oxford University Press, 2008. View Details

Working Papers

  1. The Effect of Providing Peer Information on Retirement Savings Decisions

    We measure how receiving information about coworkers' savings behavior affects recipients' savings choices. Low-saving employees were sent a simplified 401(k) plan enrollment or contribution increase form. A randomized subset of forms included information on the (high) fraction of coworkers either participating in or contributing at least 6% of pay to the plan. We document an oppositional reaction: peer information decreased the savings of (unionized) recipients who were not eligible for automatic enrollment in the 401(k). We find no significant evidence that peer information altered the savings decisions of recipients who had previously opted out of automatic 401(k) enrollment.

    Keywords: Information; Saving; Motivation and Incentives; Behavior; Retirement;

    Citation:

    Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Katherine L. Milkman. "The Effect of Providing Peer Information on Retirement Savings Decisions." Working Paper, May 2012. View Details
  2. Self Control and Liquidity: How to Design a Commitment Contract

    If individuals have self-control problems that lead them to spend money when they had previously planned to save it, they may take up financial commitment devices that restrict their future ability to access their funds. We experimentally investigate how the demand for commitment contracts is affected by contract design features. In our experiments, each subject is endowed with a sum of money and asked to divide that money between a liquid account, which permits unrestricted withdrawals at any time over the course of the months-long experiment, and one or more commitment accounts, which impose withdrawal penalties or restrictions. The design features of the liquid account are the same for all subjects, but the design features of the commitment account(s) are randomized across subjects. When the interest rates on the two types of accounts are the same, we find that allocations to a commitment account are higher when the account is less liquid. The commitment account that disallows early withdrawals altogether attracts the largest allocations. However, this relationship no longer holds when the commitment account interest rate is greater than the liquid account interest rate.

    Keywords: Design; Saving; Motivation and Incentives; Behavior; Attitudes; Interest Rates;

    Citation:

    Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Jung Sakong. "Self Control and Liquidity: How to Design a Commitment Contract." Working Paper, April 2011. View Details