The heuristic savings hypothesis: Evidence from Roth accounts in defined contribution plans

Investigators:

John Beshears, James Choi, David Laibson, and Brigitte Madrian

Summary:

When individuals face complicated choices, such as determining how much to save for retirement, they often rely on heuristics to simplify the decision-making task (Tversky and Kahneman, 1974). Reliance on heuristics, however, can sometimes lead to large errors. The introduction of a Roth option to 401(k) savings plans in 2006 gives us an opportunity to examine the impact of heuristics in savings choices (Benartzi and Thaler, 2007). Our proposed research will examine the impact of Roth adoption on total savings plan contributions in a large set of plans.

Papers:

Beshears, J, Choi, JJ, Laibson, DI, Madrian, BC (forthcoming). “Who Uses the Roth 401(k), and How Do They Use It?,” in D. Wise (ed.), Discoveries in the Economics of Aging, University of Chicago Press.