Small Cues Change Savings Choices
increased 401(k) contribution rates by
up to 2.9 % of income in a pay period,
and low savings cues decreased 401(k)
contribution rates by up to 1.4 % of
income in a pay period.”
For example, one Savings Threshold cue
advanced high savings rates within the
email as a way to increase the plausible
range. Specifically, “You can contribute
up to 60% of your income in any pay
period.” The expectation was not that
employees would begin to save 60%
of their income, but rather providing a
sufficiently high cue could increase the
employee’s personal target. The object
of introducing a large outlier, 60%, was
to adjust the perception of an appropriate
savings goal held by participants.
Comparison to previous
experiments
It is important to note that the benefits
of this experiment are essentially free.
When faced with the problem—how can
I change participant savings behavior?—
an economically-inclined fiduciary might
be tempted to directly incentivize the
behavior they are trying to encourage.
For example, a plan fiduciary may
attempt to increase the company match
amount in a 401(k) plan to encourage
employees to save more. As the article
itself points out, previous study (Kusko,
Poterba and Wilcox—1998) found that
significantly increasing the match rates,
from 25% to 150% of the first 6% of
income, have only marginal benefits to
increasing the amount employees would
contribute to their plan. Other studies
(Choi et al—2002) found that increasing
the maximum income match level still
had inferior results compared to the free
benefits of the current experiment.
to communicate the consequences of
behavior to employees—to make the
abstract rules more tangible—rather
than changing the vague underlying
calculus of saving rates. Alternatively,
presenting a high, even unrealistic, goal
can inspire changes in behavior.
In a perfectly rational world, changing
the underlying incentives should be
more than enough to affect behavior,
but—in reality—it isn’t enough. This
study suggests that it is equally important
The full white paper is
available here:
The genuine article
The details surrounding the study are
fascinating and, if you are interested in
learning more, the article—written in
conjunction with representatives from
Yale University, Barclays Bank, Google
and the University of Pennsylvania—
is available on listed author, James
Choi’s, website.
faculty.som.yale.edu/
jameschoi/cues.pdf
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