Optimal defaults and active decisions
Carroll, Choi, Laibson, Madrian and Metrick identify an alternative to defaults that the popular literature almost never mentions: requiring people to make an explicit choice for themselves. Studying retirement enrolment, they find that compelling new hires to make an active decision raised the initial fraction enrolling by twenty-eight percentage points against a standard opt-in procedure, producing a savings distribution three months after hire that standard enrolment would take thirty months to reach. The paper then models the decision and derives when each regime is optimal. Active decisions win where people have a strong propensity to procrastinate and where their saving preferences differ widely from one another. Financial illiteracy favours automatic enrolment instead, because a default carries information that someone who cannot evaluate the decision has no other way to obtain. This is the most useful and least quoted result in the defaults literature.
Carroll, Choi, Laibson, Madrian and Metrick identify an alternative to defaults that the popular literature almost never mentions: requiring people to make an explicit choice for themselves. Studying retirement enrolment, they find that compelling new hires to make an active decision raised the initial fraction enrolling by twenty-eight percentage points against a standard opt-in procedure, producing a savings distribution three months after hire that standard enrolment would take thirty months to reach. The paper then models the decision and derives when each regime is optimal. Active decisions win where people have a strong propensity to procrastinate and where their saving preferences differ widely from one another. Financial illiteracy favours automatic enrolment instead, because a default carries information that someone who cannot evaluate the decision has no other way to obtain. This is the most useful and least quoted result in the defaults literature.
Written from the abstract, OpenAlex.
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Requiring an active decision raised initial enrolment by 28 percentage points relative to standard opt-in, producing a savings distribution after three months that opt-in took thirty months to reach. doi:10.1162/qjec.2009.124.4.1639
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- Why You Never Change the Setting, Why We Act
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Carroll, G. D., Choi, J. J., Laibson, D., Madrian, B. C., & Metrick, A. (2009). 'Optimal defaults and active decisions.' Quarterly Journal of Economics, 124(4), 1639-1674. Requiring an active decision raised initial enrolment by 28 percentage points relative to standard opt-in, producing a savings distribution after three months that opt-in took thirty months to reach. doi:10.1162/qjec.2009.124.4.1639