Decision-Making Approaches and the Propensity to Default: Evidence and Implications

42 Pages Posted: 3 Feb 2015 Last revised: 4 Feb 2015

See all articles by Jeffrey R. Brown

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics

Anne M. Farrell

Miami University Farmer School of Business - Department of Accountancy

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 3, 2015

Abstract

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.

Keywords: Default options, automatic enrollment, pensions, decision making

JEL Classification: D03, D14, G11

Suggested Citation

Brown, Jeffrey R. and Farrell, Anne M. and Weisbenner, Scott J., Decision-Making Approaches and the Propensity to Default: Evidence and Implications (February 3, 2015). Available at SSRN: https://ssrn.com/abstract=2559871 or http://dx.doi.org/10.2139/ssrn.2559871

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Illinois College of Law ( email )

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Anne M. Farrell

Miami University Farmer School of Business - Department of Accountancy ( email )

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Scott J. Weisbenner (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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