Default Options and Non-Standard 401(K) Choice

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Abstract/Contents

Abstract: As policy makers search for ways to boost savings rates, automatic enrollment 401(k) plans are gaining popularity among employers in the United States. Such plans enroll new hires into default 401(k) funds at a default contribution rate with the option to opt out. The growing field of Behavioral Economics, meanwhile, has begun to incorporate framing effects such as default options into economic modeling. These effects have important implications for public policy. This paper presents a model of 401(k) choice that accounts for non-standard responses to default contribution rates. The parameters of this model are estimated using maximum likelihood estimation. To infer the policy implications of the model, this paper adopts a generalized normative framework that defines welfare in terms of choice. The observed data generate a parameterization that is consistent with the notion that defaults influence contribution rates through both anchoring bias and status quo bias. Moreover, welfare gains from automatic enrollment may not be as large as previously thought.

Type of resource	text
Date created	May 2009

Author	Popov, Igor
Primary advisor	Bernheim, B. Douglas
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	behavioral
Subject	retirement
Subject	anchor
Subject	status quo
Subject	choice-based
Subject	framing
Genre	Thesis

Related item	Title 2009 Firestone Medal for Excellence in Undergraduate Research
Location	https://purl.stanford.edu/vr591ft3230

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Preferred Citation: Popov, Igor. (2009). Default Options and Non-Standard 401(K) Choice. Stanford Digital Repository. Available at: https://purl.stanford.edu/vr591ft3230

Stanford University, Department of Economics, Honors Theses

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