The welfare economics of default options

Description

"According to previous research, changing the default contribution rate for a 401(k) pension plan has a powerful effect on the distribution of contributions among relatively new employees. Potential explanations include the following: (1) opting out may entail significant effort and inconvenience; (2) the default rate may serve as a psychological anchor, influencing choices because of its salience or imprimatur; (3) workers may procrastinate, putting off the opt-out decision; (4) workers may be inattentive. We examine the welfare implications of defaults under each of these theories. Because three of them involve non-standard behavioral hypotheses, we adopt and implement the framework for behavioral welfare economics proposed by Bernheim and Rangel (2009). In each case we begin by developing theoretical principles, and then confront the theory with data to reach concrete quantitative conclusions"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- working paper 17587
• Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17587.

Links

• http://www.nber.org/papers/w17587