The Welfare Economics of Default Options in 401(k) Plans

By B. Douglas Bernheim, Andrey Fradkin, I. Popov. The American Economic Review, 2015

180 citations recorded by the source corpus.

Default contribution rates for 401(k) pension plans powerfully influence choices. Potential causes include opt-out costs, procrastination, inattention, and psychological anchoring. Using realistically parameterized models, we show how the optimal default, the magnitude of the welfare effects, and the degree of normative ambiguity depend on the behavioral model, the scope of the choice domain deemed welfare-relevant, the use of penalties for passive choice, and other 401(k) plan features. While results are theory-specific, our analysis provides reasonably robust justifications for setting the default either at the highest contribution rate matched by the employer or—contrary to common wisdom—at zero. (JEL D14, D91, J26, J32)

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/1dde8de6b4064b6d561e9723666682f176e267af

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Citations in the corpus

Best Practices for Using Hedonic Property Value Models to Measure Willingness to Pay for Environmental Quality (2020, background): “…misinformed at the time of purchase even when it comes to high-stakes financial decisions such as choosing a college major (Wiswall and Zafar 2015), choosing a health insurance plan (Handel and Kolstad 2015), or developing a strategy to save money for retirement (Bernheim, Fradkin, and Popov 2015).”
The Good, the Bad, and the Ugly: A Unified Approach to Behavioral Welfare Economics1 (2016, methodology): “However, their effectiveness in the hypothetical choice setting is controversial (see, for example, Bernheim et al., 2015). they understood the consequences of their actions correctly in settings where they were actually confused.”