Save(d) by Design
72 Pages Posted: 2 Sep 2018 Last revised: 11 Sep 2021
Date Written: September 1, 2021
We begin by presenting novel administrative evidence from 840 401(k) plans with automatic enrollment (AE) indicating that the risk of retirement insecurity extends to a significant share of actual enrollees. Hypothesizing that this risk is materially affected by the initial decision to enroll at the default rate or to personalize enrollment at a higher rate, we investigate the sensitivity of initial enrollment to non-economic features of digital design that increasingly shape plan engagement. Specifically, we describe three large-scale field experiments, administered across 500 AE plans, that vary the psychological design (i.e., color, layout, phrasing, informational salience) of the digital interface from which employees decide to confirm, personalize, or decline enrollment. The field studies, supplemented by hypothetical choice experiments and a survey of hundreds of plan administrators, yield four findings. First, we show that modest changes to the psychological design of the interface result in sizable increases in personalized enrollment, full match take-up, and average contributions—equivalent to those predicted from a 68 to 74 percent increase in the modal match. Second, we show that marginal personalized enrollees appear to increase their initial contributions substantially and to an extent equivalent to inframarginal counterparts, implying potentially significant welfare gains due to design. Third, lab evidence indicates that design does not affect enrollment through standard economic channels of preferences/beliefs or often-cited behavioral frictions (inattention, confusion, distrust) and suggests instead that enrollment may emerge from a non-deliberative process in which design shifts affective appraisals. Finally, an industry survey shows that most plan administrators underestimate the potency of design and cannot identify optimal design elements. The findings raise new concerns about the retirement preparedness of 401(k) enrollees, highlight the potentially profound, and largely unrecognized, influence of digital design on financial decisions such as savings, and challenge basic economic assumptions underlying prevailing approaches to consumer protection and welfare analyses.
JEL Classification: D2, D10, D14, D18, D91
Suggested Citation: Suggested Citation