Decision-Making Approaches and the Propensity to Default: Evidence and Implications
This paper examines heterogeneity in the responsiveness to default options in a large state retirement plan, focusing on individuals’ decision-making approaches as well as their economic and demographic characteristics. Using a survey of plan participants, we find that procrastination and the need for cognitive closure are important determinants of the likelihood of default. We also explore an important implication of defaulting – individuals who default are significantly more likely to subsequently express a desire to enroll in a different plan. The desire to change plans is also correlated with numerous economic and decision-making characteristics, including procrastination.
This research was supported by the U.S. Social Security Administration (SSA) through grants RRC08098400-04-00 and RRC08098400-03-00 to the National Bureau of Economic Research (NBER) as part of the SSA Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, or the NBER. This research would not have been possible without the expert and enthusiastic assistance of the State Universities Retirement System staff, especially Bill Mabe, Pam Butler, Tracy Childress, and Byron Campbell. We thank Susan Anderson for cheerful and expert assistance in programming the survey instrument and Lisa Marinelli for her exceptional assistance guiding this project through the Institutional Review Board process. We thank John Beshears, Bruce Carlin, James Choi, and workshop participants at the SSA and the University of Colorado at Boulder for feedback on earlier versions of this paper. Disclosure: Brown is a Trustee for TIAA and has also received compensation as a speaker, author, or consultant from a number of financial institutions that are involved in retirement plan design. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jeffrey R. Brown
I have served since 2009 as a Trustee for TIAA, a company that sells pensions, annuities and other retirement income products. I have received compensation totaling more than $10,000 from several financial institutions, including life insurance companies, for making presentations about retirement income security. I have received more than $10,000 in compensation from the American Council of Life Insurers for speaking and writing white papers on topics related to retirement income security. I have received more than $10,000 in compensation from NISA Investment Advisors as a consultant on retirement products.
Brown, Jeffrey R. & Farrell, Anne M. & Weisbenner, Scott J., 2016. "Decision-making approaches and the propensity to default: Evidence and implications," Journal of Financial Economics, Elsevier, vol. 121(3), pages 477-495. citation courtesy of