Gopi Shah Goda, Matthew R. Levy, Colleen Flaherty Manchester, Aaron Sojourner, Josh Tasoff, 11 February 2020

A default effect in retirement saving is well established in the literature, but less is known about why this effect exists. This column examines US employees’ retirement contributions and default behaviour over a period when their employer moved from opt-in (i.e. a default savings rate of 0%) to automatic enrolment at 3%.  The findings suggest that rather than there being a single character trait that leads to default behaviour in retirement savings, the features of the plan interact with individual traits to determine behaviour.  Low financial literacy leads to default behaviour when the default is no contribution, but when the default is 3%, present bias leads to default behaviour.  

Joyce He, Sonia Kang, Nicola Lacetera, 08 February 2020

Many work environments require their employees to apply for promotions, a process that results in fewer women opting to compete. This column presents evidence to suggest that changing promotion schemes to a default where everyone is considered but has the option to ‘opt out’ could help close the gender gap in applications to compete for promotions. 

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