Callen, Mike 
ORCID: 0000-0002-8408-1404, Blumenstock, Joshua E. and Ghani, Tarek
(2016)
Mobile-izing savings with automatic contributions: experimental evidence on dynamic inconsistency and the default effect in Afghanistan.
IPA Working Papers.
Innovations for Poverty Action, New Haven, CT.
Abstract
Through a field experiment in Afghanistan, we show that default enrollment in payroll deductions increases rates of savings by 40 percentage points, and that this increase is driven by present-biased preferences. Working with Afghanistan’s primary mobile phone operator, we designed and deployed a new mobile phone-based automatic payroll deduction system. Each of 967 employees at the country’s largest firm was randomly assigned a default contribution rate (either 0% or 5%) as well as a matching incentive rate (0%, 25%, or 50%). We find that employees initially assigned a default contribution rate of 5% are 40 percentage points more likely to contribute to the account 6 months later than individuals assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. We also find evidence of habit formation: default enrollment increases the likelihood that employees continue to save after the trial ended, and increases employees’ self-reported interest in saving and sense of financial security. To understand why default enrollment increases participation, we conducted several interventions designed to induce employees to make a non-default election, and separately measured employee time preferences. Ruling out several competing explanations, we find evidence that the default effect is driven largely by present-biased preferences that cause the employee to procrastinate in making a non-default election.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Official URL: | https://www.poverty-action.org/publications |
| Additional Information: | © 2016 Innovations for Poverty Action |
| Divisions: | Economics |
| Subjects: | H Social Sciences > HG Finance B Philosophy. Psychology. Religion > BF Psychology |
| Date Deposited: | 10 Jan 2020 15:30 |
| Last Modified: | 11 Dec 2024 19:32 |
| URI: | http://eprints.lse.ac.uk/id/eprint/103037 |
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