Present Bias Causes and Then Dissipates Auto-enrollment Savings Effects
AEA Papers and Proceedings
vol. 112,
May 2022
(pp. 136-41)
Abstract
Present bias causes procrastination, which leads households to stick with auto-enrollment defaults. However, present bias also engenders overconsumption. Separation from each employer generates a rollover of 401(k) balances to an individual retirement account (IRA) that is more liquid than the 401(k) account. Households with sufficient present bias will partially or fully deplete these rollover IRAs before retirement. Present-biased agents may be whipsawed by auto-enrollment. They follow their employer's default while still employed and then spend some or all of the new savings shortly after they separate from each employer.Citation
Beshears, John, James Choi, David Laibson, and Peter Maxted. 2022. "Present Bias Causes and Then Dissipates Auto-enrollment Savings Effects." AEA Papers and Proceedings, 112: 136-41. DOI: 10.1257/pandp.20221020Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- J26 Retirement; Retirement Policies