Deciding Now to Save More Later

A major obstacle to behavior change is the fact that many beneficial actions, such as eating a healthy diet, exercising regularly, and contributing to an employer-sponsored retirement plan, require an individual to incur immediate costs in return for long-term benefits. Individuals often have difficulty adopting behaviors with this time profile of costs and benefits, as even large future benefits will be outweighed by the immediacy of the short-run costs. However, the same individuals often agree enthusiastically today to implement these actions in the future. By postponing the incidence of the short-run costs, delayed implementation causes those costs not to loom as large relative to the long-run benefits, so the cost-benefit calculation driving the decision becomes more favorable. Relatedly, individuals may be overly optimistic about their future circumstances and future ability to execute virtuous plans, making behavior change appear easier when pursued in the future.

This pilot project offered employees the opportunity to agree now to increase their savings plan contribution rate in the future and test whether providing this option increases savings, isolating the impact of a delayed implementation option and explore more deeply how best to design such features to encourage behavior change.