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Obama sends defaults to the rescue

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The New York Times has an interesting article called Savings Accounts for All: Simple but not Easy, which talks of the Obama administration’s plans to set up an automatic IRAs (Individual Retirement Accounts) for workers in the USA.

This is clearly policy in the behavioral economics / Nudge tradition, which is no surprise as Nudge author Cass Sunstein will be named head of the Office of Information and Regulatory Affairs in the present administration. The article even mentions research on the effects of autoenrollment, though it would have been nice had the NYT named the academics who carried out the research. Since the article does not, Decision Science News will give some citation love here:

  • Brigitte C Madrian & Dennis F Shea. (2001). The Power of Suggestion: Inertia in 401 (k) Participation and Savings Behavior. The Quarterly Journal of Economics, 116(4), 1149-1187.
  • Richard H. Thaler & Shlomo Benartzi (2004) Save More Tomorrow Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy, 112 (1, pt. 2), S164-S187.

On a sidenote, the article mentions that in the proposed plan “There would be a standardized default investment, probably some kind of mutual fund with a mix of stocks and bonds that gets more conservative over time.” Since many outside of Finance do not know this, Decision Science News would like to direct its readers’ attention to the fact that there is not universal agreement among academics that portfolios should get more conservative with age. Some think one ought to pick the right asset allocation and stick with it throughout life. See this clearly-written article for a review.

The daily defaults with power to change lives
Default effects of organ donation

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  1. Madrian and the Myth of Homo Economicu « Words from the Wellesley College Economics Students Association says:

    […] “Obama Sends Defaults to the Rescue.” Decision Science News. http://www.decisionsciencenews.com/?p=730 […]

    November 9, 2009 @ 7:14 am

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