A General Solution to the Problem of Setting Optimal Default Options
AbstractWe 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. In a recent paper, we demonstrated with considerable generality that weighted opt-out minimization is approximately optimal, and we identified surprisingly broad conditions under which unweighted opt-out minimization is approximately optimal. Here we provide concise intuition for these results.
CitationBernheim, B. Douglas, and Jonas Mueller-Gastell. 2022. "A General Solution to the Problem of Setting Optimal Default Options." AEA Papers and Proceedings, 112: 131-35. DOI: 10.1257/pandp.20221019
- C61 Optimization Techniques; Programming Models; Dynamic Analysis
- J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions