Less is Not More: Information Presentation Complexity and 401(K) Planning Choices

40 Pages Posted: 30 May 2018

See all articles by Eric Cardella

Eric Cardella

Texas Tech University - Rawls College of Business

Charlene M. Kalenkoski

Texas Tech University

Michael Parent

University of Texas at Austin

Abstract

This paper presents the results of an experiment that is designed to examine how information presentation and complexity impact retirement-savings behavior. The experiment is performed twice, using both a Qualtrics panel of new employees and a sample of business school students. In this experiment, participants first were provided with either a long or short description of a hypothetical employer-sponsored 401(k) plan. Then they were asked whether they would enroll in the hypothetical plan and, if so, what percentage of their salary they would contribute.If they chose to contribute, they were asked how they would like to allocate their contribution between stocks and bonds. Participants were offered the option to stick with pre-assigned default options such as a 4% contribution and a 50-50 stocks and bonds split. The hypothesis is that providing concise information with helpful recommendations would improve choices over providing lengthy and detailed information. However, controlling for demographic and other factors, this hypothesis was not supported by the data, for either the new employees or the business school students. Thus, the data suggest that simplifying the presentation of retirement-plan information to employees is unlikely to result in vastly improved retirement-planning choices.

Keywords: retirement planning, 401(k), information complexity, nudge, choice architecture

JEL Classification: G11, G41, H31, J32, D83, C90

Suggested Citation

Cardella, Eric and Kalenkoski, Charlene M. and Parent, Michael, Less is Not More: Information Presentation Complexity and 401(K) Planning Choices. IZA Discussion Paper No. 11538. Available at SSRN: https://ssrn.com/abstract=3185231

Eric Cardella (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Charlene M. Kalenkoski

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Michael Parent

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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