Optimal Default Options: The Case for (Weighted) Opt-Out Minimization / B. Douglas Bernheim, Jonas Mueller Gastell.

Format:

Book

Author/Creator:

Bernheim, B. Douglas.

Contributor:

National Bureau of Economic Research.

Mueller Gastell, Jonas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28254.

NBER working paper series no. w28254

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We examine the problem of setting optimal default options such as passively selected contribution rates in employee-directed pension plans. Existing results suggest that a simple rule of thumb, opt-out minimization, is optimal under special conditions, but this result is fragile, and the literature does not provide a general analytic solution. We demonstrate with considerable generality that weighted opt-out minimization is approximately optimal, and we provide clear mathematical intuition for the robustness of this result. We also identify surprisingly broad conditions under which unweighted opt-out minimization is approximately optimal. We conduct simulations to evaluate the accuracy of the approximation.

Notes:

Print version record

December 2020.