Re: The Indeterminacy of Individual Economic Actions
Brian Doss wrote: > > My intuition agrees with you, at least given a five year time-scale. > > That is, if the default was to stay in SS, and people had to send in > > some form to opt out, then within a few years most people would, even > > though they won't do a similar think regarding their companies plan. > > This, with the default-as-informative-endorsement theory, suggests > > that people trust their government less than their company. > >It's not necessarily an issue of less trust- it could be that people easily >see that SS is a poor investment (low or negative rate of return) and thus >decide to opt out. No doubt that some will opt out because of the trust >factor, but I think given the amount of information available on social >security, people would be making more informed choices than simply reacting >to gut "I dont trust you" instincts. Let us say that "opt out" means that you don't get any benefits, and your contribution is reduced down to the level required to maintain the current inter-generational redistribution. This is what I had in mind, but should have said. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030 703-993-2326 FAX: 703-993-2323
Re: The Indeterminacy of Individual Economic Actions
> > My intuition agrees with you, at least given a five year time-scale. > That is, if the default was to stay in SS, and people had to send in > some form to opt out, then within a few years most people would, even > though they won't do a similar think regarding their companies plan. > This, with the default-as-informative-endorsement theory, suggests > that people trust their government less than their company. It's not necessarily an issue of less trust- it could be that people easily see that SS is a poor investment (low or negative rate of return) and thus decide to opt out. No doubt that some will opt out because of the trust factor, but I think given the amount of information available on social security, people would be making more informed choices than simply reacting to gut "I dont trust you" instincts. Brian Doss ___ Say Bye to Slow Internet! http://www.home.com/xinbox/signup.html
Re: The Indeterminacy of Individual Economic Actions
> What does this say about the economists model of human behavior? > -- Bill Dickens > "The Power of Suggestion: Inertia in 401(k) Participation and > Savings Behavior" > findings. First, 401(k) participation is significantly higher > under automatic enrollment. Second, the default contribution > rate and investment allocation chosen by the company under > automatic enrollment has a strong influence on the savings > behavior of 401(k) participants. These findings do not change the economic model of homo economicus, economizing man. It takes effort and time to make changes and gather information, so inertia is to be expected. Optimality is subjective rather than being based on objective rewards. The reasons for anchoring (being stuck on certain concepts even though not objectively true or optimal) and information bias are the subject area of psychology rather than economics. Fred Foldvary
Re: The Indeterminacy of Individual Economic Actions
Since their wasteful government continues to exist; even as wasteful companies wither away this observation holds much appeal to me. -Original Message- From: Robin Hanson <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] <[EMAIL PROTECTED]> Date: Tuesday, July 25, 2000 12:42 PM Subject: Re: The Indeterminacy of Individual Economic Actions >Bryan Caplan wrote: >> > It also suggests that most people might stay with social security >> > if it were made voluntary - at least for a while. >> >>This is a really neat point, especially because I'm pretty sure it's >>wrong. I can't imagine many people who are already comfortable with >>personal investing sticking with SS. At least measured in dollars >>rather than people, I'd expect more than 50% pullout from SS within a >>year. > >My intuition agrees with you, at least given a five year time-scale. >That is, if the default was to stay in SS, and people had to send in >some form to opt out, then within a few years most people would, even >though they won't do a similar think regarding their companies plan. >This, with the default-as-informative-endorsement theory, suggests >that people trust their government less than their company. > > > >Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu >Asst. Prof. Economics, George Mason University >MSN 1D3, Carow Hall, Fairfax VA 22030 >703-993-2326 FAX: 703-993-2323 >
Re: The Indeterminacy of Individual Economic Actions
Bryan Caplan wrote: > > It also suggests that most people might stay with social security > > if it were made voluntary - at least for a while. > >This is a really neat point, especially because I'm pretty sure it's >wrong. I can't imagine many people who are already comfortable with >personal investing sticking with SS. At least measured in dollars >rather than people, I'd expect more than 50% pullout from SS within a >year. My intuition agrees with you, at least given a five year time-scale. That is, if the default was to stay in SS, and people had to send in some form to opt out, then within a few years most people would, even though they won't do a similar think regarding their companies plan. This, with the default-as-informative-endorsement theory, suggests that people trust their government less than their company. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030 703-993-2326 FAX: 703-993-2323
Re: The Indeterminacy of Individual Economic Actions
In your example of the radon detector the change in price could well be different depending on the direction. If all homes had them, the builder can buy in larger quantities- and in any case uniformity is less costly as it leads to less errors (especially in processes in which a number of subcontractors must be utilized in a certain order.) Are you proposing a level of rational ignorance about radon detectors? This sounds reasonable to me. -Original Message- From: Bryan Caplan <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] <[EMAIL PROTECTED]> Date: Tuesday, July 25, 2000 10:05 AM Subject: Re: The Indeterminacy of Individual Economic Actions >Could workers be taking the "default" option as a kind of endorsement or >certification by their employer than this particular choice is a >generally wise one? > >E.g., if my home builder made radon detectors a standard home feature >(where I could request a downgrade), I would want one. But if there >were merely an optional add-on, I wouldn't request the upgrade. The way >they frame the option seems to convey information about its value. >-- >Prof. Bryan Caplan [EMAIL PROTECTED] >http://www.gmu.edu/departments/economics/bcaplan > > "We may be dissatisfied with television for two quite different > reasons: because our set does not work, or because we dislike > the program we are receiving. Similarly, we may be dissatisfied > with ourselves for two quite different reasons: because our body > does not work (bodily illness), or because we dislike our > conduct (mental illness)." > --Thomas Szasz, *The Untamed Tongue* >
Re: The Indeterminacy of Individual Economic Actions
Robin Hanson wrote: > It also suggests that most people might stay with social security > if it were made voluntary - at least for a while. This is a really neat point, especially because I'm pretty sure it's wrong. I can't imagine many people who are already comfortable with personal investing sticking with SS. At least measured in dollars rather than people, I'd expect more than 50% pullout from SS within a year. Hoping I get the chance to be proven right or wrong, but not holding my breath... -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "We may be dissatisfied with television for two quite different reasons: because our set does not work, or because we dislike the program we are receiving. Similarly, we may be dissatisfied with ourselves for two quite different reasons: because our body does not work (bodily illness), or because we dislike our conduct (mental illness)." --Thomas Szasz, *The Untamed Tongue*
Re: The Indeterminacy of Individual Economic Actions
Could workers be taking the "default" option as a kind of endorsement or certification by their employer than this particular choice is a generally wise one? E.g., if my home builder made radon detectors a standard home feature (where I could request a downgrade), I would want one. But if there were merely an optional add-on, I wouldn't request the upgrade. The way they frame the option seems to convey information about its value. -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "We may be dissatisfied with television for two quite different reasons: because our set does not work, or because we dislike the program we are receiving. Similarly, we may be dissatisfied with ourselves for two quite different reasons: because our body does not work (bodily illness), or because we dislike our conduct (mental illness)." --Thomas Szasz, *The Untamed Tongue*
Re: The Indeterminacy of Individual Economic Actions
Bill Dickens wrote: >I have not read this paper, but I find the conclusions described in the >abstract completely plausible. What does this say about the economists >model of human behavior? > >"The Power of Suggestion: Inertia in 401(k) Participation and >Savings Behavior" ... >http://papers.ssrn.com/paper.taf?abstract_id=228155 >... Although none of the economic features of the plan >changed, this switch to automatic enrollment dramatically >changed the savings behavior of employees Seems suggestive of herding to me, which suggests that people feel quite ignorant about appropriate savings levels. It also suggests that most people might stay with social security if it were made voluntary - at least for a while. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030 703-993-2326 FAX: 703-993-2323
The Indeterminacy of Individual Economic Actions
I have not read this paper, but I find the conclusions described in the abstract completely plausible. What does this say about the economists model of human behavior? -- Bill Dickens "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior" BY: BRIGITTE C. MADRIAN University of Chicago DENNIS F. SHEA United Health Group Document: Available from the SSRN Electronic Paper Collection: http://papers.ssrn.com/paper.taf?abstract_id=228155 Paper ID: NBER Working Paper No. W7682 Date: May 2000 Contact: BRIGITTE C. MADRIAN Email: Mailto:[EMAIL PROTECTED] Postal: University of Chicago Graduate School of Business 1101 East 58th Street Chicago, IL 60637 USA Phone: 773-702-8079 Fax: 773-702-0458 Co-Auth: DENNIS F. SHEA Email: not available Postal: United Health Group 9900 Bren Road East Minnetonka, MN 55343 USA Paper Requests: Full-Text downloads are available from SSRN Online for $5. ABSTRACT: In this paper, we analyze the 401(k) savings behavior of employees in a large U.S. corporation before and after an interesting change in the company 401(k) plan. Before the plan change, employees were required to affirmatively elect participation in the 401(k) plan. After the plan change, employees were automatically and immediately enrolled in the 401(k) plan unless they made a negative election to opt out of the plan. Although none of the economic features of the plan changed, this switch to automatic enrollment dramatically changed the savings behavior of employees. We have two key findings. First, 401(k) participation is significantly higher under automatic enrollment. Second, the default contribution rate and investment allocation chosen by the company under automatic enrollment has a strong influence on the savings behavior of 401(k) participants. A substantial fraction of 401(k) participants hired under automatic enrollment exhibit what we call 'default' behavior--sticking to both the default contribution rate and the default fund allocation even though very few employees hired before automatic enrollment picked this particular outcome. This 'default' behavior appears to result both from participant inertia and from many employees taking the default as investment advice on the part of the company. Overall, these results are consistent with the notion that large changes in savings behavior can be motivated simply by the 'power of suggestion.' These findings have important implications for the optimal design of 401(k) savings plans as well as for any type of Social Security reform that includes personal accounts over which individuals have some amount of control. They also shed light more generally on the importance of both economic and non-economic factors in the determination of individual savings behavior.
