Passive Decisions and Potent Defaults

Edited by James J. Choi, David Laibson, Brigitte C. Madrian and Andrew Metrick

in Analyses in the Economics of Aging

Published by University of Chicago Press

Published in print August 2005 | ISBN: 9780226902869
Published online February 2013 | e-ISBN: 9780226903217 | DOI:
Passive Decisions and Potent Defaults

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This chapter proposes a theory of optimal defaults in related to retirement savings. It suggests that it is sometimes optimal to set extreme defaults that are far away from the mean optimal savings rate. This chapter discusses the application of the proposed model to calculate optimal defaults for employees at four different companies. The findings reveal that optimal defaults are likely to be at one of three savings rates: 5 to 6 percent of the employer match threshold or about 15 percent of the maximal savings rate.

Keywords: optimal defaults; retirement savings; optimal savings rate; employer match threshold; maximal savings rate

Chapter.  7730 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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