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Why do defaults affect behavior? Experimental evidence from Afghanistan

Blumenstock, Joshua, Callen, Mike and Ghani, Tarek (2018) Why do defaults affect behavior? Experimental evidence from Afghanistan. American Economic Review, 108 (10). 2868–2901. ISSN 0002-8282

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Identification Number: 10.1257/aer.20171676

Abstract

We report on an experiment examining why default options impact behavior. Working with one of the largest private firms in Afghanistan, we randomly assigned each of 949 employees to different variants of a new default savings account. Employees assigned a default contribution rate of 5% are 40 percentage points more likely to contribute than employees assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. Our design permits us to rule out several common explanations for default effects, including employer endorsement, employee inattention, and a lack of awareness about how to switch. Instead, we find evidence that the default effect is driven largely by a combination of present-biased preferences and the cognitive cost of calculating alternate savings scenarios. Default assignment also causes employees to develop savings habits that outlive our experiment: they are more likely to believe that savings is important, less likely to report being too financially constrained to save, and more likely to make an active decision to save at the end of our trial.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2019 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
T Technology > T Technology (General)
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
Date Deposited: 13 Dec 2019 11:00
Last Modified: 21 Aug 2020 08:09
URI: http://eprints.lse.ac.uk/id/eprint/102899

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