Choi on Retirement Savings

Many people have experienced the power of procrastination. Activities such as deciding how much to save for retirement often get put off, sometimes with devastating impact.

James Choi, assistant professor of finance, researches household investment behavior. One of his most influential papers emerged from what he describes as a very simple natural experiment. He and his co-authors collected data from companies that switched 401k retirement plan enrollment defaults from opt-in to opt-out, meaning that employees were automatically enrolled, though they could remove themselves from the program. Employees also continued to be able to choose how much to put into retirement savings. The companies simply changed what happened when employees did nothing. The data showed the tremendous power of default settings. Many employees remained at the default enrollment status and contribution level years after the change.

Policy makers concerned about the lack of retirement savings have been quite interested in the research. Legislation encouraging automatic enrollment in retirement savings has been put in place in the United States, Britain, and New Zealand following the release of the findings.

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