Interdepartmental Reserarch Seminar - Banking & Finance and Economics

We study heterogeneity in responsiveness to choice architecture, focusing on
the propensity of low-income versus high-income employees to opt out of the default contribution rate in 401(k) retirement savings plans. We develop a statistical model to distinguish between two underlying sources of heterogeneity: low-income employees may be more likely to remain at the default because (i) it is similar to the target contribution rates that they would have selected for themselves anyway or (ii) they are simply slower to opt out of the default, controlling for the target contribution rates that they would select upon opting out. Applying the model to compare below-medianincome and above-median-income employees at ten large companies, we estimate that the second source of heterogeneity accounts for two-thirds of the 10 percentage point difference in the probability of remaining at the default after two years of tenure, conditional on having a non-default target contribution rate. We also study two firms that
changed the default, and we find that low-income employees are more likely to respond to the change in the default by switching their target contribution rates to correspond with the new default.

Please join the Economics Department and the Banking and Finance Departments for a research seminar.  This event is open to all Case Western Reserve University faculty, Ph.D. students, economic majors and minors, and those interested in economics research.
 
Contact Information:
Teresa Kabat
teresa.kabat@case.edu
216.368.4110