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Instantaneous Gratification:

Behavior, Models, and Retirement Savings Policy

David Laibson
Harvard University and NBER
July 16, 2008

1. Motivating Experiments
A Thought Experiment
Would you like to have
A) 15 minute massage now
or
B) 20 minute massage in an hour

Would you like to have


C) 15 minute massage in a week
or
D) 20 minute massage in a week and an hour

Read and van Leeuwen (1998)


Choosing Today

If you were
deciding today,
would you choose
fruit or chocolate
for next week?

Eating Next Week

Time

Patient choices for the future:


Choosing Today
Today, subjects
typically choose
fruit for next week.

Eating Next Week


74%
choose
fruit

Time

Impatient choices for today:


Choosing and Eating
Simultaneously

If you were
deciding today,
would you choose
fruit or chocolate
for today?

Time

Time Inconsistent Preferences:


Choosing and Eating
Simultaneously

70%
choose
chocolate

Time

Read, Loewenstein & Kalyanaraman (1999)


Choose among 24 movie videos
Some are low brow: Four Weddings and a Funeral
Some are high brow: Schindlers List
Picking for tonight: 66% of subjects choose low brow.
Picking for next Wednesday: 37% choose low brow.
Picking for second Wednesday: 29% choose low brow.
Tonight I want to have fun
next week I want things that are good for me.

Extremely thirsty subjects


McClure, Ericson, Laibson, Loewenstein and Cohen (2007)
Choosing between,
2x juice in 5 minutes
option.
Choosing between
juice in 25 minutes
option.

juice now
or
60% of subjects choose first
juice in 20 minutes or 2x
30% of subjects choose first

We estimate that the 5-minute discount rate is 50% and the


long-run discount rate is 0%.
Ramsey (1930s), Strotz (1950s), & Herrnstein (1960s) were
the first to understand that discount rates are higher in the
short run than in the long run.

Conceptual Outline
People are not internally consistent decision-makers
Internal conflicts can be modeled and measured
Scalable, inexpensive policies can transform behavior

Outline
Motivating experimental evidence
Theoretical framework
Field evidence
Neuroscience foundations
Neuroimaging evidence
Study 1: Amazon gift certificates
Study 2: chips and juice
6. Policy analysis
1.
2.
3.
4.
5.

2. Theoretical Framework
Classical functional form: exponential functions.
D(t) = t
D(t) = 1,
Ut = ut + ut+1 ut+2ut+3
But exponential function does not show instant
gratification effect.
Discount function declines at a constant rate.
Discount function does not decline more quickly in
the short-run than in the long-run.

Constant rate of decline

-D'(t)/D(t) = rate of decline of a discount function

Slow rate of decline


in long run
Rapid rate
of decline
in short run

An exponential discounting paradox.


Suppose people discount at least 1% between today and
tomorrow.
Suppose their discount functions were exponential.
Then 100 utils in t years are worth 100*e(-0.01)*365*t utils today.

What is 100 today worth today?


What is 100 in a year worth today?
What is 100 in two years worth today?
What is 100 in three years worth today?

100.00
2.55
0.07
0.00

An Alternative Functional Form


Quasi-hyperbolic discounting
(Phelps and Pollak 1968, Laibson 1997)
D(t) = 1,
Ut = ut + ut+1 ut+2ut+3
Ut = ut + ut+1 ut+2ut+3
uniformly discounts all future periods.
exponentially discounts all future periods.

Building intuition
To build intuition, assume that = and = 1.
Discounted utility function becomes
Ut = ut + ut+1 ut+2ut+3
Discounted utility from the perspective of time t+1.
Ut+1 =
ut+1 + ut+2 ut+3
Discount function reflects dynamic inconsistency:
preferences held at date t do not agree with preferences
held at date t+1.

Exercise
Assume that = and = 1.
Suppose exercise (current effort 6) generates delayed
benefits (health improvement 8).
Will you exercise?
Exercise Today:
Exercise Tomorrow:

-6 + [8] = -2
0 + [-6 + 8] = +1

Agent would like to relax today and exercise tomorrow.


Agent wont follow through without commitment.

3. Field Evidence
Della Vigna and Malmendier (2004)

Average cost of gym membership: $75 per month


Average number of visits: 4
Average cost per vist: $19
Cost of pay per visit: $10

Choi, Laibson, Madrian, Metrick (2002)


(unreliable?) self-reports about undersaving.
Survey
Mailed to 590 employees (random sample)
195 usable responses
Matched to administrative data on actual savings behavior
Consider a population of 100 respondents
68 report saving too little
24 of 68 plan to raise 401(k) contribution in next 2 months
Only 3 of 24 actually do so in the next 4 months

Financial education
Choi, Laibson, Madrian, Metrick (2004)
Seminars presented by professional financial
advisors
Curriculum: Setting savings goals, asset allocation,
managing credit and debt, insurance against
financial risks
Seminars offered throughout 2000
Linked data on individual employees seminar
attendance to administrative data on actual savings
behavior before and after seminar

Effect of education is positive but small


Seminar attendees

Non-attendees

%
planning
to make
change

%
actually
made
change

%
actually
made
change

100%

14%

7%

Increase contribution rate

28%

8%

5%

Change fund selection

47%

15%

10%

Change asset allocation

36%

10%

6%

Those not in 401(k)


Enroll in 401(k) Plan
Those already in 401(k)

$100 bills on the sidewalk


Choi, Laibson, Madrian (2004)
Employer match is an instantaneous, riskless return on investment
Particularly appealing if you are over 59 years old
Have the most experience, so should be savvy
Retirement is close, so should be thinking about saving
Can withdraw money from 401(k) without penalty
We study seven companies and find that on average, half of
employees over 59 years old are not fully exploiting their
employer match
Average loss is 1.6% of salary per year
Educational intervention has no effect

Laibson, Repetto, and Tobacman (2007)


Use MSM to estimate discounting parameters:
Substantial illiquid retirement wealth: W/Y = 3.9.
Extensive credit card borrowing:
68% didnt pay their credit card in full last month
Average credit card interest rate is 14%
Credit card debt averages 13% of annual income
Consumption-income comovement:
Marginal Propensity to Consume = 0.23
(i.e. consumption tracks income)

LRT Simulation Model

Stochastic Income
Lifecycle variation in labor supply (e.g. retirement)
Social Security system
Life-cycle variation in household dependents
Bequests
Illiquid asset
Liquid asset
Credit card debt

Numerical solution (backwards induction) of 90 period


lifecycle problem.

LRT Results:
Ut = ut + ut+1 ut+2ut+3

= 0.70 (s.e. 0.11)


= 0.96 (s.e. 0.01)
Null hypothesis of = 1 rejected (t-stat of 3).
Specification test accepted.
Simulated (Hyperbolic)
Moments: Empirical
%Visa:
68%
63%
Visa/Y:
13%
17%
MPC:
23%
31%
f(W/Y):
2.6
2.7

4. Neuroscience Foundations

What is the underlying mechanism?


Why are our preferences inconsistent?
Is it adaptive?
How should it be modeled?
Does it arise from a single time preference
mechanism (e.g., Herrnsteins reward per unit time)?
Or is it the resulting of multiple systems interacting
(Shefrin and Thaler 1981, Bernheim and Rangel
2004, ODonoghue and Loewenstein 2004,
Fudenberg and Levine 2004)?

Shiv and Fedorikhin (1999)


Cognitive burden/load is manipulated by having
subjects keep a 2-digit or 7-digit number in mind as
they walk from one room to another
On the way, subjects are given a choice between a
piece of cake or a fruit-salad
Processing burden

% choosing cake

Low (remember only 2 digits)

41%

High (remember 7 digits)

63%

Meso-limbic dopamine system


vs. Fronto-Parietal System
Frontal
cortex

Mesolimbic dopamine system

Parietal
cortex

Relationship to quasi-hyperbolic model


Hypothesize that mesolimbic dopamine system is
impatient.
Hypothesize that the fronto-parietal system is patient
Heres one implementation of this idea:

Ut =
(1/)Ut =

ut + ut+1 ut+2ut+3
(1/)ut + ut+1 ut+2ut+3

(1/)Ut =(1/)ut + [ut + ut+1 ut+2ut+3


limbic

fronto-parietal cortex

Hypothesis:
Limbic system discounts reward at a higher rate than does the
prefrontal cortex.

discount value

1.0

0.0

mesolimbic system
prefrontal cortex

time

5. Neuroimaging Evidence
McClure, Laibson, Loewenstein, and Cohen
Science (2004)
Do agents think differently about immediate rewards and
delayed rewards?
Does immediacy have a special emotional drive/reward
component?
Does emotional (mesolimbic) brain discount delayed
rewards more rapidly than the analytic (fronto-parietal
cortex) brain?

Choices involving Amazon gift certificates:


Time
delay
Reward

d>0
d
R
R
Hypothesis: fronto-parietal cortex.
Time

delay
d=0
d
Reward R
R
Hypothesis: fronto-parietal cortex and limbic.

McClure, Laibson, Loewenstein, and Cohen


Science (2004)

Emotional system responds only to immediate rewards


7

T13

Neural activity

x=4mm

VStr

y=8mm

MOFC

z=4mm

MPFC

PCC

Seconds

d = Earliest reward available today


d = Earliest reward available in 2 weeks
d = Earliest reward available in 1 month

0.4%
2s

Analytic brain responds equally to all rewards


VCtx

PMA

RPar

DLPFC

VLPFC

LOFC

x=44mm

0.4%
2s

x=0mm
0

T13

15

d = Earliest reward available today


d = Earliest reward available in 2 weeks
d = Earliest reward available in 1 month

Brain Activity

Brain Activity in the Frontal System and


Emotional System Predict Behavior
(Data for choices with an immediate option.)

0.05
0.0

0.05

Choose
Smaller
Immediate
Reward

Frontal
system
Emotional
System
Choose
Larger
Delayed
Reward

Conclusions of Amazon study


Time discounting results from the combined influence of
two neural systems:
Mesolimbic dopamine system is impatient.
Fronto-parietal system is patient.
These two systems are separately implicated in
emotional and analytic brain processes.
When subjects select delayed rewards over immediately
available alternatives, analytic cortical areas show
enhanced changes in activity.

Open questions
1. What is now and what is later?
Our immediate option (Amazon gift certificate)
did not generate immediate consumption.
Also, we did not control the time of consumption.
2. How does the limbic signal decay as rewards are delayed?
3. Would our results replicate with a different reward domain?
4. Would our results replicate over a different time horizon?
New experiment on primary rewards: Juice
McClure, Ericson, Laibson, Loewenstein, Cohen
(Journal of Neuroscience, 2007)

Subjects water deprived for 3hr prior to experiment

(subject scheduled for 6:00)

15s
i

ii

10s

5s

Time

iii
iv. Juice/Water squirt (1s

B
(i) Decision Period

Free (10s max.)

(ii) Choice Made

2s
15s

Figure 1

(iii) Pause

Variable Duration

(iv) Reward Delivery

Free (1.5s Max)

Experiment Design

d
d'-d
(R,R')

{ This minute, 10 minutes, 20 minutes }


{ 1 minute, 5 minutes }
{(1,2), (1,3), (2,3)}
d = This minute
d'-d = 5 minutes
(R,R') = (2,3)

P(choose early)

Behavioral evidence for


non-exponential discounting
0.8
0.6
0.4
0.2
0

This
minute

10
minutes

20
Minutes

Delay to early reward (d)

P(choose early)

Behavioral evidence for


non-exponential discounting
0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

This
minute

10
minutes

20
Minutes

Delay to early reward (d)

d-d = 1 min
d-d = 5 min

This
minute

10
minutes

20
minutes

Delay to early reward (d)

Discount functions fit to behavioral data


= 0.53 (se = 0.041)
= 0.98 (se = 0.014)

Limbic

Cortical

= 0.47 (se = 0.101)


= 1.02 (se = 0.018)

Evidence for two-system model


Can reject restriction to a single exponential: t-stat > 5
Double exponential generalization fits data best

Neuroimaging data
Areas that respond primarily to immediate rewards
ACC

PCu

NAcc

x = -12mm

SGC

x = -2mm

PCu

NAcc

ACC

PCC

MOFC/SGC

z = -10mm

x = -8mm

Areas that show little discounting


PCC

BA10

SMA/PMA

BA9/44

BA46

11

PPar
Vis Ctx

x = 0mm

Ant Ins

x = 40mm

x = -48mm

T
0

Figure 4

Comparison with Amazon experiment:


Impatient areas (p<0.001)

x = 0mm

y = 8mm

Patient areas (p<0.001)

x = 0mm

x = -48mm

Juice
only

Figure 5

Impatient areas (p<0.01)

x = -4mm

y = 12mm

Patient areas (p<0.01)

x = 0mm

Amazon
only

x = -48mm

Both

Measuring discount functions


using neuroimaging data
Impatient voxels are in the emotional
(mesolimbic) reward system
Patient voxels are in the analytic
(prefrontal and parietal) cortex
Average (exponential) discount rate in
the impatient regions is 4% per minute.
Average (exponential) discount rate in
the patient regions is 1% per minute.

(D=0,D'=1)

(D=0,D'=5)
(D=10,D'=11)
(D=10,D'=15)

(D=20,D'=21)

(D=20,D'=25)

Normed Activation
.5
1
1.5

Average Beta Area Activation, Actual and Predicted

10
15
Time to later reward
Actual

Predicted

20

25

(D=0,D'=1)

(D=0,D'=5)

(D=10,D'=15)
(D=10,D'=11)
(D=20,D'=21)

(D=20,D'=25)

Normed Activation
.5
1
1.5

Average Delta Area Activation, Actual and Predicted

10
15
Time to later reward
Actual

Predicted

20

25

Summary of neuroimaging evidence


One system associated with midbrain dopamine
neurons (mesolimbic dopamine system) discounts at
a high rate.
Second system associated with lateral prefrontal and
posterior parietal cortex discounts at a low rate.
Combined function of these two systems accounts for
decision making consistently across choice domains,
including non-exponential discounting regularities.

Outline
Experimental evidence for dynamic inconsistency.
Theoretical framework: quasi-hyperbolic discounting.
Field evidence: dynamic decisions.
Neuroscience:
Mesolimbic Dopamine System (emotional, impatient)
Fronto-Parietal Cortex (analytic, patient)
5. Neuroimaging evidence
Study 1: Amazon gift certificates
Study 2: juice squirts
6. Policy
7. The Age of Reason
1.
2.
3.
4.

6. Policy
Defaults in the savings domain
Welcome to the company
If you dont do anything
You are automatically enrolled in the 401(k)
You save 2% of your pay
Your contributions go into a default fund
Call this phone number to opt out of enrollment
or change your investment allocations

Madrian and Shea (2001)


Choi, Laibson, Madrian, Metrick (2004)

Automatic
enrollment
Standard
enrollment

Employees enrolled under automatic


enrollment cluster at default contribution rate.
Fraction of Participants at different contribution rates:
Default contribution
rate under automatic
enrollment

Participants stay at the automatic enrollment


defaults for a long time.

Fraction of Participants

Fraction of Participants Hired Under Automatic Enrollment


who are still at both Default Contribution Rate and Asset Allocation
Company B
Company C
Company D

Tenure at Company (Months)

Do people like a little paternalism?

Survey given to workers who were subject to automatic


enrollment:
You are glad your company offers automatic
enrollment.
Enrolled
employees:
Agree?
Disagree?
Non-enrolled employees:
All employees:

98% agree
79% agree
97% agree
Source: Harris Interactive Inc.

The power of deadlines: Active decisions


Carroll, Choi, Laibson, Madrian, Metrick (2004)

Active decision mechanisms require employees to make an


active choice about 401(k) participation.
Welcome to the company
You are required to submit this form within 30 days of hire,
regardless of your 401(k) participation choice
If you dont want to participate, indicate that decision
If you want to participate, indicate your contribution rate and
asset allocation
Being passive is not an option

Active Decision Cohort

Standard enrollment cohort

Simplified enrollment raises participation


Beshears, Choi, Laibson, Madrian (2006)

2005
2004

2003

Outline
1.
2.
3.
4.
5.
6.

Motivating experimental evidence


Theoretical framework
Field evidence
Neuroscience foundations
Neuroimaging evidence
Policy discussion
Defaults
Deadlines
Simplicity (make it easy)

A copy of these slides will soon be available on my


Harvard website.

End

Should Defaults Influence Economic


Outcomes?
Standard neoclassical theory:
If
transactions costs are small and stakes are large,
defaults should not influence rational consumers.
In practice, defaults make an enormous difference:
Organ donation
Car insurance
Car purchase options
Consent to receive e-mail marketing
Savings
Asset allocation

Overview of defaults
1. Defaults affect all saving and asset
allocation outcomes
2. Four psychological factors jointly
contribute to the default effect
3. How can we identify optimal defaults
4. Alternative interventions (education)
is much less effective

1. Defaults Affect Saving and


Asset Allocation
i.
ii.
iii.
iv.
v.

Participation
Contribution rates
Asset allocation
Pre-retirement distributions
Decumulation / annuitization

Participation, Contribution rates, and


Asset Allocation
Automatic Enrollment in a US 401(k) plan
Welcome to the company
If you dont do anything
You are automatically enrolled in the 401(k)
You save 2% of your pay
Your contributions go into a money market fund
Call this phone number to opt out of enrollment
or change your investment allocations

Madrian and Shea (2001)


Choi, Laibson, Madrian, Metrick (2004)

Employees enrolled under auto-enrollment


cluster at the default contribution rate.

Default contribution
rate under automatic
enrollment

Participants stay at the automatic enrollment


defaults for a long time.

Four psychological factors


contribute to the default effect
i.
ii.
iii.
iv.

Financial illiteracy
Endorsement
Complexity
Present-bias

iii. Complexity
Complexity delay
Psychology literature (Tversky and Shafir 1992,
Shafir, Simonson and Tversky 1993, Dhar and
Knowlis 1999, Iyengar and Lepper 2000 )
Savings literature: each additional 10 funds produces
a 1.5 to 2.0 percentage point decline in participation
(Iyengar, Huberman and Jiang 2004)
Also results on complexity generating more
conservative asset allocation (Iyengar and Kamenica
2007).
Quick enrollment experiments

Complexity and Quick Enrollment


Conceptual Idea
Simplify the savings plan enrollment decision by giving
employees an easy way to elect a pre-selected
contribution rate and asset allocation bundle

Implementation at Company D
New hires at employee orientation: 2% contribution
rate invested 50% money market / 50% stable value

Implementation at Company E
Existing non-participants: 3% contribution rate
invested 100% in money market fund

iv. Present-Biased Preferences


Self control and savings outcomes: Why do
today what you can put off until tomorrow?
(Laibson 1997; ODonoghue and Rabin 1999;
Diamond and Koszegi 2003)
Framework: exponential discounting with an
additional factor, <1, that uniformly downweights the future.

Ut =

ut + ut+1 ut+2ut+3

Procrastination (assume
, = 1).
Suppose you can join the plan today (effort cost $50) to
gain delayed benefits $20,000 (e.g. value of match)
Every period you delay, total benefits fall by $10.
What are the discounted costs of joining at different
periods?

Join Today:
Join t+1:
Join t+2:
Join t+3:

-50
0

+
+
0 +
0 +

[0]
[-50 - 10]
[-50 - 20]
[-50 - 30]

= -50
= -30
= -35
= -40

Interaction with financial


illiteracy
Consider someone with a high level of financial literacy, so
effort cost is only $10 (not $50)
As before, every period of delay, total benefits fall by $10.
What are the discounted costs of joining at different
periods?

Join Today:
Join t+1:
Join t+2:
Join t+3:

-10
0
0
0

+
+
+
+

[0]
[-10 - 10]
[-10 - 20]
[-10 - 30]

= -10
= -10
= -15
= -20

Interaction with endorsement


and complexity
Consider a plan with a simple form, or an endorsed form,
so the effort cost is again only $10 (not $50)
As before, every period of delay, total benefits fall by $10.
What are the discounted costs of joining at different
periods?

Join Today:
Join t+1:
Join t+2:
Join t+3:

-10
0
0
0

+
+
+
+

[0]
[-10 - 10]
[-10 - 20]
[-10 - 30]

= -10
= -10
= -15
= -20

3. Optimal Defaults public


policy
Mechanism design problem in which policy
makers set a default for agents with present
bias (Carrol, Choi, Laibson, Madrian and
Metrick 2007)
Defaults are sticky for three reasons
Cost of opting-out of the default
Cost varies over time option value of waiting
Present-biased preferences procrastination

Basic set-up of problem


Specify behavioral model of households
Flow cost of staying at the default
Effort cost of opting-out of the default
Effort cost varies over time option value of waiting to
leave the default
Present-biased preferences procrastination

Specify (dynamically consistent) social welfare


function of planner (e.g., set =1)
Planner picks default to optimize social welfare
function

Optimal Defaults
Two classes of optimal defaults
Automatic enrollment
Optimal when employees have relatively homogeneous
savings preferences (e.g. match threshold) and relatively
little propensity to procrastinate

Active Decision require individuals to make a


decision (eliminate the option to passively accept a
default)
Optimal when employees have relatively heterogeneous
savings preferences and relatively strong tendency to
procrastinate

Key point: sometimes the best default is no


default.

High Heterogeneity

30%

Offset
Default

Low Heterogeneity

Active Decision

Center
Default

0%
0

Beta

Lessons from theoretical


analysis of defaults
Defaults should be set to maximize average
well-being, which is not the same as saying that
the default should be equal to the average
preference.
Endogenous opting out should be taken into
account when calculating the optimal default.
The default has two roles:
causing some people to opt out of the default (which
generates costs and benefits)
implicitly setting savings policies for everyone who
sticks with the default

The power of deadlines: Active


decisions
Choi, Laibson, Madrian, Metrick (2007)
Active decision mechanisms require employees to make
an active choice about 401(k) participation.
Welcome to the company
You are required to submit this form within 30 days of
hire, regardless of your 401(k) participation choice
If you dont want to participate, indicate that decision
If you want to participate, indicate your contribution rate
and asset allocation
Being passive is not an option

Active decisions: conclusions


Active decision raises 401(k) participation.
Active decision raises average savings rate by 50
percent.
Active decision doesnt induce choice clustering.
Under active decision, employees choose savings
rates that they otherwise would have taken three years
to achieve. (Average level as well as the entire
multivariate covariance structure.)

New directions for defaults

Defaults for savings rate escalation


Defaults with high savings rates
Defaults for lifecycle rebalancing
Defaults for annual rebalancing
Defaults for employer stock
Defaults at separation
Defaults for annuitization
Individualized defaults (savings rate and asset allocation)
Defaults for employees not covered by DB/DC plans
Defaults for investment of tax refunds

4. Alternative Policies
Paying employees to save
Educating employees

$100 bills on the sidewalk


Choi, Laibson, Madrian (2004)
Employer match is an instantaneous, riskless return on investment
Particularly appealing if you are over 59 years old
Have the most experience, so should be savvy
Retirement is close, so should be thinking about saving
Can withdraw money from 401(k) without penalty
We study seven companies and find that on average, half of
employees over 59 years old are not fully exploiting their
employer match
Average loss is 1.6% of salary per year
Educational intervention has no effect

Financial education
Choi, Laibson, Madrian, Metrick
(2004)
Seminars presented by professional financial
advisors
Curriculum: Setting savings goals, asset allocation,
managing credit and debt, insurance against
financial risks
Seminars offered throughout 2000
Linked data on individual employees seminar
attendance to administrative data on actual savings
behavior before and after seminar

Effect of education is positive but


Seminar attendees
Nonsmall
attendees
%
planning
to make
change

%
actually
made
change

%
actually
made
change

100%

14%

7%

28%

8%

5%

Change fund selection

47%

15%

10%

Change asset

36%

10%

6%

Those not in 401(k)


Enroll in 401(k) Plan
Those already in 401(k)
Increase contribution
rate

Effect of education is positive but


Seminar attendees
Nonsmall
attendees
%
planning
to make
change

%
actually
made
change

%
actually
made
change

100%

14%

7%

28%

8%

5%

Change fund selection

47%

15%

10%

Change asset

36%

10%

6%

Those not in 401(k)


Enroll in 401(k) Plan
Those already in 401(k)
Increase contribution
rate

Effect of education is positive but


Seminar attendees
Nonsmall
attendees
%
planning
to make
change

%
actually
made
change

%
actually
made
change

100%

14%

7%

28%

8%

5%

Change fund selection

47%

15%

10%

Change asset

36%

10%

6%

Those not in 401(k)


Enroll in 401(k) Plan
Those already in 401(k)
Increase contribution
rate

Financial education effects are small


Seminar attendees have good intentions to change
their 401(k) savings behavior, but most do not follow
through
Financial education alone will not dramatically
improve the quality of 401(k) savings outcomes
Choi et al (2005) study the effect of the Enron,
Worldcom, and Global Crossing scandals on
employer stock holding
No net sales of employer stock in reaction to these news
stories
These scandals did not affect the asset allocation decisions
of new hires.
These hires did not affect the asset allocation decisions of
new hires at other Houston firms.

Conclusion
Defaults are not neutral for four reasons:

Investors are not financially literate


Investors display an endorsement effect
Investors respond adversely to complexity
Investors are prone to procrastinate

Employers/institutions will influence savings


outcomes through the choice of defaults (whether
the institution wants to do this or not)
We should devote more effort to the analysis of
how we pick defaults.