Experimental and Behavioral Economics Seminar

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

Michael Callen (UCSD Rady School of Management)
Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan
September 22, 2017 | 12:00 - 13:00 | BLU-003

We report on an experiment examining why default options impact behavior. Working with one of the largest private rms in Afghanistan, we randomly assigned each of 949 employees to di erent 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 e ect through nancial incentives alone would require a 50% match from the employer. Our design permits us to rule out several common explanations for default e ects, includ- ing employer endorsement, employee inattention, and a lack of awareness about how to switch. Instead, we nd evidence that the default e ect is driven largely by a com- bination 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 nancially constrained to save, and more likely to make an active decision to save at the end of our trial.