Department of Economics
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NBER Working Papers and Publications
|January 2005||Optimal Defaults and Active Decisions|
with James J. Choi, David Laibson, Brigitte Madrian, Andrew Metrick: w11074
Defaults can have a dramatic influence on consumer decisions. We identify an overlooked but practical alternative to defaults: requiring individuals to make an explicit choice for themselves. We study such "active decisions" in the context of 401(k) saving. We find that compelling new hires to make active decisions about 401(k) enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt-in enrollment procedure, producing a savings distribution three months after hire that would take three years to achieve under standard enrollment. We also present a model of 401(k) enrollment and characterize the optimal enrollment regime. Active decisions are optimal when consumers have a strong propensity to procrastinate and savings preferences that are highly h...
Published: Carroll, Gabriel D., James J. Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick. “Optimal Defaults and Active Decisions.” Quarterly Journal of Economics 124, 4 (November 2009). citation courtesy of