WEBVTT 00:00:00.000 --> 00:00:01.470 [SQUEAKING] 00:00:01.470 --> 00:00:02.450 [CLICKING] 00:00:02.450 --> 00:00:04.410 [RUSTLING] 00:00:04.410 --> 00:00:09.545 [CLICKING] 00:00:09.545 --> 00:00:10.670 FRANK SCHILBACH: All right. 00:00:10.670 --> 00:00:11.980 I'm going to get started. 00:00:11.980 --> 00:00:14.100 This is lecture 19, of 14.13. 00:00:14.100 --> 00:00:17.600 I'm going to finish up some of what we discussed 00:00:17.600 --> 00:00:21.230 last time on gender discrimination and identity 00:00:21.230 --> 00:00:26.010 And then we're going to talk about nudges and default 00:00:26.010 --> 00:00:27.720 effects. 00:00:27.720 --> 00:00:31.370 So let me sort of fairly quickly go through the remaining 00:00:31.370 --> 00:00:36.300 slides of lecture 18, and then move to the lecture slides. 00:00:36.300 --> 00:00:38.990 So remember, we talked last time about the study 00:00:38.990 --> 00:00:42.230 by Bertrand et al. about gender identity norms, 00:00:42.230 --> 00:00:44.750 where we talked about because-- 00:00:44.750 --> 00:00:49.820 so the authors argue there's this norm that some men 00:00:49.820 --> 00:00:52.550 perceive-- and perhaps even some women-- 00:00:52.550 --> 00:00:55.430 that men should be earning more than their wives. 00:00:55.430 --> 00:00:58.670 There's this cliff-- this missing mass of households 00:00:58.670 --> 00:01:00.950 or couples in the US. 00:01:00.950 --> 00:01:04.220 We talked about different reasons for that. 00:01:04.220 --> 00:01:06.540 Missing couples that don't form in the first place. 00:01:06.540 --> 00:01:10.310 Such marriages and couples are less happy and stable, 00:01:10.310 --> 00:01:12.470 so they end up in divorce. 00:01:12.470 --> 00:01:15.470 And there's also, even for existing 00:01:15.470 --> 00:01:18.050 couples that form, whether the wife or the woman 00:01:18.050 --> 00:01:20.990 has more earnings potential. 00:01:20.990 --> 00:01:23.750 In some cases, at least, women tend 00:01:23.750 --> 00:01:28.070 to either work less few hours, and therefore perhaps that 00:01:28.070 --> 00:01:29.690 was promoted and the like. 00:01:29.690 --> 00:01:33.110 And in addition, they might be involved in more 00:01:33.110 --> 00:01:34.830 nonmarket and childcare work. 00:01:34.830 --> 00:01:36.200 It's called the second shift. 00:01:36.200 --> 00:01:39.320 They have to do more work because the husband is very 00:01:39.320 --> 00:01:41.600 unhappy about her earning more. 00:01:41.600 --> 00:01:45.770 Which then, of course, holds potentially 00:01:45.770 --> 00:01:48.680 the wife back at her work. 00:01:48.680 --> 00:01:51.200 Now, somebody was asking last time-- 00:01:51.200 --> 00:01:55.250 I believe Justin or others-- about the arrival 00:01:55.250 --> 00:01:58.715 of children and the gender gap. 00:01:58.715 --> 00:02:00.590 So there's quite a few studies like this one. 00:02:00.590 --> 00:02:02.240 So out of this here, which is the study 00:02:02.240 --> 00:02:04.250 by Kleven et al. in Denmark. 00:02:04.250 --> 00:02:06.890 And these studies essentially show 00:02:06.890 --> 00:02:12.020 there is a substantial what they call child penalty for women, 00:02:12.020 --> 00:02:15.380 which is when you look at men's and women's earnings. 00:02:15.380 --> 00:02:18.250 On the left-hand side, there's a figure shows earnings. 00:02:18.250 --> 00:02:20.450 This is yearly data over time. 00:02:20.450 --> 00:02:23.000 On the right-hand side, you see hours worked. 00:02:23.000 --> 00:02:25.040 Similarly, you see productivity. 00:02:25.040 --> 00:02:27.380 But essentially, you tend to see is that for men-- 00:02:27.380 --> 00:02:30.730 this is the gray bar here on top-- 00:02:30.730 --> 00:02:33.120 you see essentially before the child is born, 00:02:33.120 --> 00:02:37.980 you match men and women to have sort of similar earnings, 00:02:37.980 --> 00:02:40.640 the trajectory would look very similar. 00:02:40.640 --> 00:02:42.260 And then, for men, perhaps there's 00:02:42.260 --> 00:02:46.160 a slight decline or no further for the increase over time. 00:02:46.160 --> 00:02:52.130 But for women, there's a clear drop in earnings. 00:02:52.130 --> 00:02:54.340 And that drop persists for many, many years. 00:02:54.340 --> 00:02:56.450 So it's not just like there's a year after birth, 00:02:56.450 --> 00:02:59.150 there's lower earnings for, on average, women. 00:02:59.150 --> 00:03:01.550 But there's a persistent gap overall 00:03:01.550 --> 00:03:03.980 that has to be presumably with some women 00:03:03.980 --> 00:03:08.450 never returning back to work, some women remaining part time, 00:03:08.450 --> 00:03:11.390 just some women working a few hours when they have children. 00:03:11.390 --> 00:03:14.060 Notice that that's not just about hours worked. 00:03:14.060 --> 00:03:15.980 So when you look at the earnings gap, 00:03:15.980 --> 00:03:17.500 it's about something like 20%. 00:03:17.500 --> 00:03:21.090 The long-run child penalty here is like 20%. 00:03:21.090 --> 00:03:22.530 It's also, for hours worked, it's 00:03:22.530 --> 00:03:25.610 something like 10%, which must mean that there's 00:03:25.610 --> 00:03:30.200 an additional 10% coming from productivity or wages 00:03:30.200 --> 00:03:31.940 conditional on hours worked. 00:03:31.940 --> 00:03:35.180 So it's not only that women are working fewer hours, 00:03:35.180 --> 00:03:38.000 but they're also paid less per hour, which presumably 00:03:38.000 --> 00:03:43.790 is once people start working few hours, take more breaks, 00:03:43.790 --> 00:03:46.070 or just take a break for a few years, 00:03:46.070 --> 00:03:49.490 that they're getting less promotions and so on. 00:03:49.490 --> 00:03:51.980 And that sort of carries through for a long time. 00:03:51.980 --> 00:03:54.410 Now, interestingly, some of these child penalties are 00:03:54.410 --> 00:03:56.180 transmitted through generations-- 00:03:56.180 --> 00:03:58.422 meaning from parents to daughters-- 00:03:58.422 --> 00:04:00.380 suggesting that essentially, in the same family 00:04:00.380 --> 00:04:03.650 where there is child penalties from the parents-- 00:04:03.650 --> 00:04:07.520 as in the woman that is a childcare penalty 00:04:07.520 --> 00:04:10.640 for the mother, the daughter will also 00:04:10.640 --> 00:04:13.730 be likely to have a child penalty later on. 00:04:13.730 --> 00:04:17.630 Like, 20, 30 years once she's been actually working. 00:04:17.630 --> 00:04:20.660 So there seems to be something to do with the child 00:04:20.660 --> 00:04:24.080 environment and gender identity, which is the norm 00:04:24.080 --> 00:04:26.960 that the woman is supposed to take care of the children, 00:04:26.960 --> 00:04:28.850 versus the husband is not. 00:04:28.850 --> 00:04:33.830 And that seems to be sort of permitted through generations 00:04:33.830 --> 00:04:36.680 in the child environment. 00:04:36.680 --> 00:04:38.960 Now, you might sort of say, well, then, couldn't we 00:04:38.960 --> 00:04:43.340 just do some policies that support women or support 00:04:43.340 --> 00:04:46.910 parents to help them deal with children better? 00:04:46.910 --> 00:04:49.520 And wouldn't that help? 00:04:49.520 --> 00:04:51.590 And there's some policies that people have done. 00:04:51.590 --> 00:04:54.090 In particular, in academia, you might say, well, 00:04:54.090 --> 00:05:00.020 if a woman has a child or a couple as a child in general, 00:05:00.020 --> 00:05:03.620 that's surely a hint to productivity. 00:05:03.620 --> 00:05:06.078 And so therefore, one could say, well, that's [INAUDIBLE].. 00:05:06.078 --> 00:05:07.870 That's in fact what people have been doing, 00:05:07.870 --> 00:05:10.640 is sort of, let's stop people's tenure clock which essentially 00:05:10.640 --> 00:05:12.140 is an assistant professor. 00:05:12.140 --> 00:05:14.600 People have something like 7, 8, 9 years 00:05:14.600 --> 00:05:16.610 to do this research until tenure. 00:05:16.610 --> 00:05:18.980 You might say, let's give people another year 00:05:18.980 --> 00:05:20.710 if they have a child. 00:05:20.710 --> 00:05:25.210 Now, one proposal is to have gender neutral clock stopping 00:05:25.210 --> 00:05:26.290 policies. 00:05:26.290 --> 00:05:30.460 Now, these policies are intended to involve these gender neutral 00:05:30.460 --> 00:05:37.090 policies, meaning that both parents, regardless of who's 00:05:37.090 --> 00:05:39.935 giving-- or not just the person who's 00:05:39.935 --> 00:05:41.810 giving birth, but also the other person who's 00:05:41.810 --> 00:05:43.820 taking care of the child potentially 00:05:43.820 --> 00:05:47.460 is getting an additional year on the tenure clock. 00:05:47.460 --> 00:05:50.510 So the intention is here in particular to involve men more 00:05:50.510 --> 00:05:52.340 in child care. 00:05:52.340 --> 00:05:54.470 But you know, those kinds of policies 00:05:54.470 --> 00:05:57.260 tend to be not enforced, and potentially 00:05:57.260 --> 00:05:59.960 they might even enhance gender inequality 00:05:59.960 --> 00:06:03.020 if it's the case that both men and women get another year. 00:06:03.020 --> 00:06:05.810 But the man essentially takes that as a year 00:06:05.810 --> 00:06:09.710 off where you can do additional work while the woman is back 00:06:09.710 --> 00:06:12.920 taking care of the household and the child. 00:06:12.920 --> 00:06:16.670 Then, such policies in some ways might make things worse. 00:06:16.670 --> 00:06:18.800 And this is exactly what some studies find, 00:06:18.800 --> 00:06:22.490 is that these gender neutral policies, in particular, 00:06:22.490 --> 00:06:23.570 in economics. 00:06:23.570 --> 00:06:26.310 There's also some examples from other settings. 00:06:26.310 --> 00:06:30.050 But essentially, introducing such policies substantially 00:06:30.050 --> 00:06:33.930 reduce female tenure rates while increasing male tenure rates. 00:06:33.930 --> 00:06:37.760 So here's a policy that looks actually a good policy. 00:06:37.760 --> 00:06:39.410 It's gender neutral and so on. 00:06:39.410 --> 00:06:42.110 But in fact, it might not be, depending on who takes 00:06:42.110 --> 00:06:44.310 advantage of that and who doesn't. 00:06:44.310 --> 00:06:47.720 So it's a very tricky question because some of these things 00:06:47.720 --> 00:06:49.580 are not enforceable. 00:06:49.580 --> 00:06:52.920 If instead you gave only these tenure exemptions to women, 00:06:52.920 --> 00:06:56.120 then you would get issues in households, that then women 00:06:56.120 --> 00:06:58.640 are sort of pushed out of work, which in part I 00:06:58.640 --> 00:07:00.920 think some of these neutral tenure 00:07:00.920 --> 00:07:02.773 clocks try to avoid in the first place. 00:07:02.773 --> 00:07:04.190 So it's not clear what to do here. 00:07:04.190 --> 00:07:05.930 But I think it's important to understand 00:07:05.930 --> 00:07:08.330 that some policies that look like they 00:07:08.330 --> 00:07:12.740 are in fact neutral or gender neutral, they might in fact not 00:07:12.740 --> 00:07:13.810 be. 00:07:13.810 --> 00:07:17.440 Now, let me tell you what I [got about one more paper related 00:07:17.440 --> 00:07:19.850 to gender and the labor market or identity, 00:07:19.850 --> 00:07:23.920 which is very nice paper by Bursztyn et al., which 00:07:23.920 --> 00:07:28.120 asks the question whether women avoid career enhancing actions 00:07:28.120 --> 00:07:31.250 because these actions signal undesirable traits. 00:07:31.250 --> 00:07:34.570 So in particular, women might be-- 00:07:34.570 --> 00:07:36.550 ambitious women might be perceived 00:07:36.550 --> 00:07:42.250 as not attractive partners in the labor market, 00:07:42.250 --> 00:07:46.460 in particular, in some settings such as among MBA students. 00:07:46.460 --> 00:07:50.450 And so, in particular, as you might be familiar with, 00:07:50.450 --> 00:07:54.250 there's lots of dating happening among MBA students, where 00:07:54.250 --> 00:07:58.550 people try to essentially find partners or somebody to get 00:07:58.550 --> 00:07:59.570 married to. 00:07:59.570 --> 00:08:03.800 And it appears to be the case that being ambitious or being 00:08:03.800 --> 00:08:06.590 perhaps overly ambitious is perceived 00:08:06.590 --> 00:08:10.340 as negatively as an undesirable trait 00:08:10.340 --> 00:08:12.980 on the dating market for MBAs. 00:08:12.980 --> 00:08:14.160 Now, what Bursztyn et al. 00:08:14.160 --> 00:08:19.311 find-- and this is joint work with Amanda Pallais and Thomas 00:08:19.311 --> 00:08:22.130 Fujiwara they find that unmarried and unmarried 00:08:22.130 --> 00:08:24.920 female MBA students perform similarly 00:08:24.920 --> 00:08:27.440 when the performance is unobserved by classmates. 00:08:27.440 --> 00:08:29.600 So these are things like exams, problem sets. 00:08:29.600 --> 00:08:31.517 These are things that only the professor sees, 00:08:31.517 --> 00:08:33.440 but not necessarily their classmates. 00:08:33.440 --> 00:08:34.830 To here, male and-- 00:08:34.830 --> 00:08:35.330 sorry. 00:08:35.330 --> 00:08:38.220 Unmarried and married female MBA students do similarly 00:08:38.220 --> 00:08:40.330 well when we compare them. 00:08:40.330 --> 00:08:44.640 But unmarried women have lower participation rates. 00:08:44.640 --> 00:08:46.360 So these are essentially things that, 00:08:46.360 --> 00:08:48.310 do you say something in class? 00:08:48.310 --> 00:08:52.288 And as you might know, in MBA classes, in some, at least, 00:08:52.288 --> 00:08:54.580 there's somebody sitting in the back actually recording 00:08:54.580 --> 00:08:58.330 each interaction, each participation very carefully 00:08:58.330 --> 00:09:03.550 so you know exactly who says how many things and how often, 00:09:03.550 --> 00:09:05.060 and so on. 00:09:05.060 --> 00:09:07.120 So it seems to me that unmarried women 00:09:07.120 --> 00:09:10.390 tend to not want to look too ambitious and too hard-working 00:09:10.390 --> 00:09:11.740 in class. 00:09:11.740 --> 00:09:13.960 Now, that's of course only suggestive. 00:09:13.960 --> 00:09:16.570 So then, they also have a field experiment 00:09:16.570 --> 00:09:19.270 where they ask people about their desired salaries 00:09:19.270 --> 00:09:23.200 and willingness to travel and work long hours in real stakes 00:09:23.200 --> 00:09:24.310 placement questioning. 00:09:24.310 --> 00:09:26.875 So this essentially, at the end, there's this placement, 00:09:26.875 --> 00:09:28.390 there's these career fairs. 00:09:28.390 --> 00:09:31.810 But people ask these questions about, 00:09:31.810 --> 00:09:33.060 what salary are you expecting? 00:09:33.060 --> 00:09:34.602 Are you willing to travel really far? 00:09:34.602 --> 00:09:36.280 Are you willing to work long hours? 00:09:36.280 --> 00:09:37.150 And so on. 00:09:37.150 --> 00:09:41.630 And of course, these questions all signal ambition. 00:09:41.630 --> 00:09:44.330 And then, the really interesting part of the experiment 00:09:44.330 --> 00:09:47.000 is, then, they varied whether this information is 00:09:47.000 --> 00:09:48.660 perceived to be private. 00:09:48.660 --> 00:09:50.333 So you just saying it to a recruiter 00:09:50.333 --> 00:09:52.250 but nobody else in your class, or anybody else 00:09:52.250 --> 00:09:55.970 might find out, versus whether there some expectation of some 00:09:55.970 --> 00:09:57.740 of their classmates actually learning 00:09:57.740 --> 00:10:00.200 about their preferences. 00:10:00.200 --> 00:10:04.190 And what they find, then, is that the single female students 00:10:04.190 --> 00:10:07.310 report lower desired salary, and willingness 00:10:07.310 --> 00:10:09.380 to travel, and work hours-- 00:10:09.380 --> 00:10:11.510 and work long hours when they think 00:10:11.510 --> 00:10:14.870 that there's an expectation that their classmates might find out 00:10:14.870 --> 00:10:15.415 about it. 00:10:15.415 --> 00:10:16.790 Which essentially is to say, they 00:10:16.790 --> 00:10:19.400 perceive it to be costly for their class, 00:10:19.400 --> 00:10:22.550 or their classmates find out about their ambition. 00:10:22.550 --> 00:10:25.460 Now, importantly, two other things are also true. 00:10:25.460 --> 00:10:27.330 One is for other groups. 00:10:27.330 --> 00:10:31.460 So, other women that are not single or for men. 00:10:31.460 --> 00:10:35.610 Essentially, these responses are unaffected by peer 00:10:35.610 --> 00:10:37.140 observability. 00:10:37.140 --> 00:10:39.500 And second, it seems to be that what's 00:10:39.500 --> 00:10:44.270 driving the observability result is the observability 00:10:44.270 --> 00:10:46.560 by single male peers. 00:10:46.560 --> 00:10:50.600 So when other female students or other non-single male peers 00:10:50.600 --> 00:10:55.700 are potentially seeing these answers, there's no effect. 00:10:55.700 --> 00:10:59.570 But the effect's really coming from other single male peers 00:10:59.570 --> 00:11:02.300 potentially seeing it, which is precisely what you expect 00:11:02.300 --> 00:11:04.970 if you think having ambition is potentially 00:11:04.970 --> 00:11:09.590 a negative signal on the dating market. 00:11:09.590 --> 00:11:11.810 So that's another sort of study showing 00:11:11.810 --> 00:11:15.320 that these norms or perceived norms 00:11:15.320 --> 00:11:19.040 are really important, not just in terms of punishing women 00:11:19.040 --> 00:11:24.410 and in some ways undeservedly for mistakes 00:11:24.410 --> 00:11:26.150 as we saw in Heather Sarson's paper, 00:11:26.150 --> 00:11:31.640 but also by holding women back by themselves. 00:11:31.640 --> 00:11:35.720 These are single women who are highly qualified MBA students 00:11:35.720 --> 00:11:39.950 who are deliberately not as ambitious and hard-working 00:11:39.950 --> 00:11:42.150 as perhaps you might think they would like to be-- 00:11:42.150 --> 00:11:45.950 which is what the private responses suggest-- 00:11:45.950 --> 00:11:49.910 because there's a penalty waiting for them, 00:11:49.910 --> 00:11:54.720 or receive penalty coming on the dating market. 00:11:54.720 --> 00:11:55.890 Any questions about this? 00:12:01.420 --> 00:12:05.200 So here's a question about, can it be the opposite? 00:12:05.200 --> 00:12:06.650 Better ask this in person. 00:12:06.650 --> 00:12:09.090 It's a little bit hard for me to follow the chat. 00:12:09.090 --> 00:12:10.930 But can it be that more confident women 00:12:10.930 --> 00:12:12.230 tend to be married? 00:12:12.230 --> 00:12:12.730 Yes. 00:12:12.730 --> 00:12:13.690 In principle, yes. 00:12:13.690 --> 00:12:15.940 But I think what we see here in the experiment 00:12:15.940 --> 00:12:19.330 is, notice that what I was saying, 00:12:19.330 --> 00:12:23.920 I was careful to say these are about there's a perceived 00:12:23.920 --> 00:12:26.260 penalty of being overly ambitious. 00:12:26.260 --> 00:12:29.360 There may well be for some women, being very ambitious 00:12:29.360 --> 00:12:29.860 and so on. 00:12:29.860 --> 00:12:32.620 That's a very highly desirable trait. 00:12:32.620 --> 00:12:34.780 But it seems to be that the perception, at least, 00:12:34.780 --> 00:12:44.130 is that being highly ambitious and so on is not desired. 00:12:53.000 --> 00:12:55.340 So I think there's another question 00:12:55.340 --> 00:12:57.980 by Lucy about married women compensating 00:12:57.980 --> 00:12:59.090 for discrimination. 00:12:59.090 --> 00:13:00.360 I think that's all. 00:13:00.360 --> 00:13:01.860 There might be other stuff going on. 00:13:01.860 --> 00:13:04.520 But I think the key part here is the variation 00:13:04.520 --> 00:13:10.230 between private and public among single female students. 00:13:10.230 --> 00:13:12.290 So when they are asking in private, 00:13:12.290 --> 00:13:15.020 they are saying essentially they want higher salaries. 00:13:15.020 --> 00:13:17.870 When they're asking in public for higher salaries and they're 00:13:17.870 --> 00:13:19.850 willing to work long hours, and so on. 00:13:19.850 --> 00:13:21.650 When they're answering in public, 00:13:21.650 --> 00:13:23.802 they're essentially holding back. 00:13:23.802 --> 00:13:25.760 Which seems to suggest-- and that's consistent, 00:13:25.760 --> 00:13:28.750 I guess, also with the participation rates. 00:13:28.750 --> 00:13:32.660 And that's consistent with why there is at least a perception 00:13:32.660 --> 00:13:38.490 of lower desirability, in particular among their single 00:13:38.490 --> 00:13:42.720 male peers, which is what this results is driven by. 00:13:42.720 --> 00:13:44.730 It's not clear, by the way, that the study shows 00:13:44.730 --> 00:13:46.380 that that's actually true. 00:13:46.380 --> 00:13:49.620 That's about these women's perceptions. 00:13:49.620 --> 00:13:51.120 The study also doesn't necessarily 00:13:51.120 --> 00:13:53.760 show that this translates at the end of the day in lower 00:13:53.760 --> 00:13:55.470 earnings, and so on, and so forth. 00:13:55.470 --> 00:13:58.020 The authors argue that that's the case. 00:13:58.020 --> 00:14:01.530 But these are only sort of questions-- 00:14:01.530 --> 00:14:04.423 real stakes questions and placement questionnaires. 00:14:04.423 --> 00:14:06.840 It's just sort of essentially more like a proof of concept 00:14:06.840 --> 00:14:09.210 arguing that this is an important force that 00:14:09.210 --> 00:14:11.560 might be at play, that women hold themselves back 00:14:11.560 --> 00:14:16.050 in some ways here and in the case of a placement 00:14:16.050 --> 00:14:17.030 questionnaire. 00:14:26.310 --> 00:14:27.990 I had started this already last time, 00:14:27.990 --> 00:14:31.680 only briefly going through the Vesterlund study, which 00:14:31.680 --> 00:14:36.390 essentially is saying that there's two forces going on. 00:14:36.390 --> 00:14:41.880 There's demand [INAUDIBLE] in terms of tasks 00:14:41.880 --> 00:14:44.700 that women and men are perhaps asked differently. 00:14:44.700 --> 00:14:48.210 And beliefs could be quite important here, and mediating 00:14:48.210 --> 00:14:50.150 who has which tasks and when. 00:14:50.150 --> 00:14:52.650 So let me show you a little bit of what that study is about. 00:14:52.650 --> 00:14:55.440 The study is essentially asking the question 00:14:55.440 --> 00:14:59.280 whether women are not saying no often enough In particular 00:14:59.280 --> 00:15:01.410 when it comes to work. 00:15:01.410 --> 00:15:03.900 And it's motivated by the fact those female faculty 00:15:03.900 --> 00:15:06.240 members tend to do a lot more what 00:15:06.240 --> 00:15:08.850 they call non-promotable tasks. 00:15:08.850 --> 00:15:11.790 These are tasks that essentially everybody wants somebody 00:15:11.790 --> 00:15:13.320 to do the task, but they don't want 00:15:13.320 --> 00:15:14.870 to do the tasks themselves. 00:15:14.870 --> 00:15:17.070 So that's like essentially University committees, 00:15:17.070 --> 00:15:21.690 and here, also undergraduate teaching, 00:15:21.690 --> 00:15:23.670 or undergraduate student advising. 00:15:23.670 --> 00:15:25.320 Of course, everybody loves undergrads 00:15:25.320 --> 00:15:28.180 and wants to advise them. 00:15:28.180 --> 00:15:30.690 However, it's not something that's 00:15:30.690 --> 00:15:32.970 good for peoples' career. 00:15:32.970 --> 00:15:34.800 So at the end of the day, faculty are often 00:15:34.800 --> 00:15:37.060 evaluated by research output. 00:15:37.060 --> 00:15:41.450 So any time that's spent on committees, et cetera, 00:15:41.450 --> 00:15:43.830 these are not going to be helping for promotions 00:15:43.830 --> 00:15:44.370 eventually. 00:15:44.370 --> 00:15:46.740 And then, one first observation is that [? women ?] 00:15:46.740 --> 00:15:49.890 do that much more than men. 00:15:49.890 --> 00:15:52.230 Now you might sort of ask, why is it that women 00:15:52.230 --> 00:15:53.790 spend their time differently? 00:15:53.790 --> 00:15:55.660 There's potentially issues of demand. 00:15:55.660 --> 00:15:58.140 Women are just asked a lot more to do these things. 00:15:58.140 --> 00:16:00.060 And there's potentially supply issues 00:16:00.060 --> 00:16:01.290 conditional on being asked. 00:16:01.290 --> 00:16:04.590 Women might be just much more likely to say yes. 00:16:04.590 --> 00:16:07.650 Now, what this paper argues is that demand and supply 00:16:07.650 --> 00:16:08.550 interact. 00:16:08.550 --> 00:16:11.520 Because women are more likely to say yes, 00:16:11.520 --> 00:16:16.080 they're also more likely to be asked in the first place. 00:16:16.080 --> 00:16:16.710 OK. 00:16:16.710 --> 00:16:17.765 So why do we care? 00:16:17.765 --> 00:16:19.140 I think I already mentioned this. 00:16:19.140 --> 00:16:20.900 There's sort of a few broad perspectives. 00:16:20.900 --> 00:16:22.650 One is about, we kind of try to understand 00:16:22.650 --> 00:16:24.552 individual decision-making. and we 00:16:24.552 --> 00:16:26.760 want to understand how people make optimal decisions. 00:16:26.760 --> 00:16:28.620 Here's another reason where people report. 00:16:28.620 --> 00:16:31.950 Here is an example where people potentially mis-optimize. 00:16:31.950 --> 00:16:34.530 There's a managerial social planner perspective 00:16:34.530 --> 00:16:36.900 that if you want to sort of organize 00:16:36.900 --> 00:16:41.070 or you want organizations to be efficient, 00:16:41.070 --> 00:16:42.570 you want to make sure that everybody 00:16:42.570 --> 00:16:44.970 does equal work in some way. 00:16:44.970 --> 00:16:46.900 And so you don't want women who are 00:16:46.900 --> 00:16:51.570 very productive to be stuck in a bunch of other tasks 00:16:51.570 --> 00:16:53.710 that hold them back. 00:16:53.710 --> 00:16:56.500 And then, there's a public policy perspective. 00:16:56.500 --> 00:17:00.130 It might essentially be that sex differences 00:17:00.130 --> 00:17:01.617 and the allocation of time. 00:17:01.617 --> 00:17:03.700 So women spending more time on these kind of tasks 00:17:03.700 --> 00:17:07.960 might explain why they're less likely to be promoted and so 00:17:07.960 --> 00:17:08.530 on. 00:17:08.530 --> 00:17:11.200 And then, understanding that and understanding these issues 00:17:11.200 --> 00:17:13.240 might sort of help with interventions 00:17:13.240 --> 00:17:15.480 to improve equity. 00:17:15.480 --> 00:17:16.069 Now, OK. 00:17:16.069 --> 00:17:17.069 So what are these tasks? 00:17:17.069 --> 00:17:18.361 Again there's promotable tasks. 00:17:18.361 --> 00:17:19.349 That's doing research. 00:17:19.349 --> 00:17:21.252 And there's non-promotable tasks. 00:17:21.252 --> 00:17:22.960 So promotable tasks, meaning essentially, 00:17:22.960 --> 00:17:25.619 if you do these tasks, you're likely to be promoted 00:17:25.619 --> 00:17:29.790 or essentially get tenure eventually. 00:17:29.790 --> 00:17:31.500 A non-promotable task essentially 00:17:31.500 --> 00:17:33.760 are tasks that many people could do the task, 00:17:33.760 --> 00:17:35.610 but everybody wants somebody to do it. 00:17:35.610 --> 00:17:39.840 But often, nobody actually wants to do it themselves. 00:17:39.840 --> 00:17:42.270 Now, the authors that first [INAUDIBLE] field study 00:17:42.270 --> 00:17:45.360 where they have faculty at a large public University 00:17:45.360 --> 00:17:47.490 where you send essentially emails from a chair, 00:17:47.490 --> 00:17:50.190 and they're requested to volunteer 00:17:50.190 --> 00:17:53.250 to join one of several university-wide faculty senate 00:17:53.250 --> 00:17:54.330 committees. 00:17:54.330 --> 00:17:58.740 And women are essentially, in these tasks, 00:17:58.740 --> 00:18:01.818 are way more likely to volunteer conditional on being asked. 00:18:01.818 --> 00:18:03.360 So that's the first piece of evidence 00:18:03.360 --> 00:18:05.430 that conditional on being asked women 00:18:05.430 --> 00:18:07.530 are more likely to be asked. 00:18:07.530 --> 00:18:09.780 Then you might say, well, perhaps there's some 00:18:09.780 --> 00:18:11.460 personality characteristic [? it's ?] [? on. ?] Maybe 00:18:11.460 --> 00:18:12.127 women are nicer. 00:18:12.127 --> 00:18:15.970 Maybe women care more about the public good. 00:18:15.970 --> 00:18:19.110 Now, what the authors show is that that may well 00:18:19.110 --> 00:18:20.250 be true in some cases. 00:18:20.250 --> 00:18:23.040 But in other cases, it's also about expectation about who 00:18:23.040 --> 00:18:25.140 does it and who doesn't. 00:18:25.140 --> 00:18:28.170 Moreover, the ask about who is asked 00:18:28.170 --> 00:18:30.930 is quite different depending on whether you're male or female. 00:18:30.930 --> 00:18:33.130 And that's where the experiment comes in. 00:18:33.130 --> 00:18:34.983 So what they do in an experiment is 00:18:34.983 --> 00:18:36.900 what's called the threshold public goods game. 00:18:36.900 --> 00:18:40.080 It's very simple, which is, a small group needs 00:18:40.080 --> 00:18:42.272 to find a volunteer for a task. 00:18:42.272 --> 00:18:43.980 These are groups of 3 people, and there's 00:18:43.980 --> 00:18:45.605 like 10 rounds where people are matched 00:18:45.605 --> 00:18:48.820 over time with each other. 00:18:48.820 --> 00:18:53.070 And so it's essentially set up to mimic real world situations 00:18:53.070 --> 00:18:56.130 where everyone prefers the task to be undertaken by someone, 00:18:56.130 --> 00:18:57.370 but not themselves. 00:18:57.370 --> 00:18:59.100 As you don't want to do it, you have 00:18:59.100 --> 00:19:00.450 to have somebody else to do it. 00:19:00.450 --> 00:19:03.180 You want that somebody does it, but you just 00:19:03.180 --> 00:19:05.050 don't want to do it yourself. 00:19:05.050 --> 00:19:07.750 And so people get-- 00:19:07.750 --> 00:19:11.020 the group of 3 gets two minutes to decide whether to invest. 00:19:11.020 --> 00:19:12.486 And investing means essentially you 00:19:12.486 --> 00:19:14.153 have to [? truly ?] press a button here. 00:19:14.153 --> 00:19:16.000 Only one person can invest, and the round 00:19:16.000 --> 00:19:17.950 ends when someone invests. 00:19:17.950 --> 00:19:21.130 If no one invests, all the members get $1. 00:19:21.130 --> 00:19:26.140 If you are investing you get $1.25 and the remaining members 00:19:26.140 --> 00:19:27.017 get $2. 00:19:27.017 --> 00:19:28.600 So if you're thinking about this task, 00:19:28.600 --> 00:19:32.000 what are you thinking about is now, A, is 00:19:32.000 --> 00:19:33.470 somebody else going to invest? 00:19:33.470 --> 00:19:37.980 And B, like conditional on your beliefs about, 00:19:37.980 --> 00:19:40.190 is somebody else going to invest any time soon? 00:19:40.190 --> 00:19:42.890 Do you want to invest or not? 00:19:42.890 --> 00:19:45.920 Clearly, it's the efficient thing that somebody invests. 00:19:45.920 --> 00:19:48.740 But you don't want to be yourself because then you get 00:19:48.740 --> 00:19:51.697 only $1.25 rather than the $2. 00:19:51.697 --> 00:19:53.780 And the clock ticks down until one person invests, 00:19:53.780 --> 00:19:57.330 or no investment is made 2 minutes. 00:19:57.330 --> 00:19:57.830 OK. 00:19:57.830 --> 00:19:59.480 So now what do we find? 00:19:59.480 --> 00:20:01.880 Or what did they find in this experiment? 00:20:01.880 --> 00:20:05.420 Women are way more likely to invest in each of these rounds. 00:20:05.420 --> 00:20:07.400 This is sort of the red line here. 00:20:07.400 --> 00:20:11.030 The blue line here is for men. 00:20:11.030 --> 00:20:16.350 And so women are much more likely to invest than men. 00:20:16.350 --> 00:20:19.130 And that's very clear when you look at these figures. 00:20:21.800 --> 00:20:23.638 And that's also very persistent over time. 00:20:23.638 --> 00:20:26.180 So it's not just like, perhaps in the first round, and so on. 00:20:26.180 --> 00:20:27.500 This is even after 10 rounds. 00:20:27.500 --> 00:20:30.480 When people keep being matched with others over time, 00:20:30.480 --> 00:20:33.510 women are much more likely to invest. 00:20:33.510 --> 00:20:34.760 Now, how do we interpret this? 00:20:34.760 --> 00:20:36.010 So how do we think about this? 00:20:36.010 --> 00:20:37.243 What can we learn about this? 00:20:37.243 --> 00:20:38.910 One explanation that I already mentioned 00:20:38.910 --> 00:20:40.890 is, women are much nicer. 00:20:40.890 --> 00:20:44.130 But can you infer this from this task? 00:20:44.130 --> 00:20:46.180 You observe if women are a lot nicer than men, 00:20:46.180 --> 00:20:48.638 well, then you should find that women are more cooperative, 00:20:48.638 --> 00:20:50.790 as Lucy suggests. 00:20:50.790 --> 00:20:53.280 If women are a lot more cooperative, 00:20:53.280 --> 00:20:56.250 you should see that in women-only groups, 00:20:56.250 --> 00:20:58.590 women are much more likely to invest 00:20:58.590 --> 00:21:00.720 than in male-only groups. 00:21:00.720 --> 00:21:04.210 And that's exactly what they tried to do in the experiment. 00:21:04.210 --> 00:21:07.320 So they have essentially single sex sessions 00:21:07.320 --> 00:21:10.870 would have all-female and all-male groups. 00:21:10.870 --> 00:21:13.830 And what you find is, while the probability of investing 00:21:13.830 --> 00:21:16.810 is actually exactly the same for men and women, 00:21:16.810 --> 00:21:18.840 they also find that when trying to predict 00:21:18.840 --> 00:21:25.043 who's investing who is not, any measures of social preferences, 00:21:25.043 --> 00:21:27.210 risk preferences and so on that they've [? listed ?] 00:21:27.210 --> 00:21:30.930 previously actually not predictive of this behavior. 00:21:30.930 --> 00:21:33.600 That sort of suggests it's really not about altruism 00:21:33.600 --> 00:21:37.320 in a sense of being nicer or wanting. 00:21:37.320 --> 00:21:39.840 So in some sense, investing is doing something nice 00:21:39.840 --> 00:21:41.670 for the others in your group. 00:21:41.670 --> 00:21:44.830 It doesn't seem to be that it's about that. 00:21:44.830 --> 00:21:47.830 It's also not so much about risk aversion. 00:21:47.830 --> 00:21:51.000 So you might say, well, I'm investing because I really 00:21:51.000 --> 00:21:51.630 like certainty. 00:21:51.630 --> 00:21:53.820 If I invest, I know exactly what I'm getting. 00:21:53.820 --> 00:21:55.860 If I'm not investing, I have a chance 00:21:55.860 --> 00:21:58.200 of like getting the $2 or essentially 00:21:58.200 --> 00:22:00.930 a lottery between $2 and $1, depending on, then, 00:22:00.930 --> 00:22:03.150 the probability is essentially about what 00:22:03.150 --> 00:22:05.310 you think is the probability of others investing. 00:22:05.310 --> 00:22:07.390 So your risk aversion might matter, 00:22:07.390 --> 00:22:09.720 but they also show that risk aversion is really not 00:22:09.720 --> 00:22:10.900 important. 00:22:10.900 --> 00:22:13.480 So now they have essentially two experiments. 00:22:13.480 --> 00:22:16.230 One is the experiment, 1 that I showed you. 00:22:16.230 --> 00:22:19.410 Women are more likely to invest in mixed sex groups, 00:22:19.410 --> 00:22:23.700 and women and men are equally likely to invest in single sex 00:22:23.700 --> 00:22:24.360 groups. 00:22:24.360 --> 00:22:25.860 And so now, then, what they're doing 00:22:25.860 --> 00:22:27.443 is, then, they're trying to say, well, 00:22:27.443 --> 00:22:29.700 could it be that beliefs that women will invest 00:22:29.700 --> 00:22:31.228 are important here? 00:22:31.228 --> 00:22:32.520 So that's essentially the idea. 00:22:32.520 --> 00:22:35.370 If you think women are more likely to invest 00:22:35.370 --> 00:22:38.670 than men, if women think this and men think this, 00:22:38.670 --> 00:22:41.580 then essentially you're going to get in a situation 00:22:41.580 --> 00:22:46.020 where if you have a mixed sex group, 00:22:46.020 --> 00:22:48.360 then you will have one woman saying to men, 00:22:48.360 --> 00:22:51.000 the woman thinks, oh, the men are not going to invest anyway. 00:22:51.000 --> 00:22:53.850 So either it's like we're investing or getting $1. 00:22:53.850 --> 00:22:56.308 So then, for the women, it's optimal to invest. 00:22:56.308 --> 00:22:57.850 And the men are going to think, well, 00:22:57.850 --> 00:22:59.058 the woman is going to invest. 00:22:59.058 --> 00:23:01.560 So why should they invest if the woman is investing anyway? 00:23:01.560 --> 00:23:06.360 For them, it's then optimal not to invest. 00:23:06.360 --> 00:23:10.240 Now, experiment 3, then, get set this 00:23:10.240 --> 00:23:15.220 in some ways, which essentially is about now getting 00:23:15.220 --> 00:23:18.005 women and men to ask to invest. 00:23:18.005 --> 00:23:20.380 What they do is, essentially, they have what's called a-- 00:23:20.380 --> 00:23:24.850 they call it a photo ask, which they have 4 people per group. 00:23:24.850 --> 00:23:26.477 3 people as 4 can invest. 00:23:26.477 --> 00:23:28.060 That's essentially the same as before. 00:23:28.060 --> 00:23:29.240 They call them green players. 00:23:29.240 --> 00:23:30.565 Not sure why, but they essentially [? do ?] 00:23:30.565 --> 00:23:31.750 [? their ?] green players. 00:23:31.750 --> 00:23:34.720 And one person is unable to invest, 00:23:34.720 --> 00:23:39.260 but he can ask one of the three others to invest. 00:23:39.260 --> 00:23:40.570 It's not a binding request. 00:23:40.570 --> 00:23:42.400 Essentially, it's sort of a nudge. 00:23:42.400 --> 00:23:44.317 So if you want to, instead of essentially just 00:23:44.317 --> 00:23:46.750 suggest that they may exert some social pressure, 00:23:46.750 --> 00:23:47.710 that's the red player. 00:23:47.710 --> 00:23:49.918 And then, the red player is essentially incentivized. 00:23:49.918 --> 00:23:52.833 The red player wants the investment to happen. 00:23:52.833 --> 00:23:54.250 So this is kind of what this looks 00:23:54.250 --> 00:23:55.910 like, is essentially three people 00:23:55.910 --> 00:23:57.220 that you see as the red player. 00:23:57.220 --> 00:23:58.720 And you can say, whom would you ask? 00:23:58.720 --> 00:23:59.920 Well, any of these three. 00:23:59.920 --> 00:24:01.420 You see the photos, so obviously you 00:24:01.420 --> 00:24:05.450 see the gender of the person. 00:24:05.450 --> 00:24:09.110 And so, what they then find is that women are much more 00:24:09.110 --> 00:24:12.110 likely to be asked. 00:24:12.110 --> 00:24:15.920 You can see here, the red lines are more to the right, 00:24:15.920 --> 00:24:18.500 or there's more red to the right, which 00:24:18.500 --> 00:24:20.750 is the total times asked to invest. 00:24:20.750 --> 00:24:24.590 So there's more asked to the right for women than for men. 00:24:24.590 --> 00:24:26.510 Now, what did we learn from that? 00:24:26.510 --> 00:24:28.520 Well, absent a request, investment rates 00:24:28.520 --> 00:24:30.350 do not differ by gender. 00:24:30.350 --> 00:24:33.630 But when asked to invest, women are more likely to do so. 00:24:33.630 --> 00:24:35.130 So there's two things going on here. 00:24:35.130 --> 00:24:38.450 One is, when asked, women are more responsive. 00:24:38.450 --> 00:24:41.210 And [INAUDIBLE] says that the marginal increase 00:24:41.210 --> 00:24:44.450 of being asked is higher for women than for men. 00:24:44.450 --> 00:24:48.830 And then, in addition, women are also more likely to be asked. 00:24:48.830 --> 00:24:50.420 Which is to say, when people have 00:24:50.420 --> 00:24:52.460 the choice about whom should you ask, 00:24:52.460 --> 00:24:54.440 well, they kind of know who is the person who 00:24:54.440 --> 00:25:03.530 is more likely to react, which is the woman in the group. 00:25:03.530 --> 00:25:06.080 So they correctly understand that if they 00:25:06.080 --> 00:25:08.660 ask the woman, that it's going to have more 00:25:08.660 --> 00:25:10.520 of an impact than asking men. 00:25:10.520 --> 00:25:11.660 And that's true. 00:25:11.660 --> 00:25:16.170 So when women are asked, they're also more likely to comply. 00:25:16.170 --> 00:25:19.820 So now, that essentially sort of says these gender differences 00:25:19.820 --> 00:25:24.770 get amplified by increases for women to contribute. 00:25:24.770 --> 00:25:29.000 So not only is it the case that they're more likely to say yes, 00:25:29.000 --> 00:25:32.690 but on top of that, they also will get more requests. 00:25:32.690 --> 00:25:37.017 Which of course, then, is like, they do so much work overall. 00:25:37.017 --> 00:25:38.600 And so, what's key here is about this. 00:25:38.600 --> 00:25:40.250 it's not about preferences. 00:25:40.250 --> 00:25:41.930 It's essentially just an equilibrium 00:25:41.930 --> 00:25:45.920 that at the end of the day will be sustained. 00:25:45.920 --> 00:25:48.110 Because again, if men think women are going to do it 00:25:48.110 --> 00:25:50.180 anyway, and if women think, well, 00:25:50.180 --> 00:25:51.862 nobody's going to do it unless I myself, 00:25:51.862 --> 00:25:54.320 [? when ?] [? I ?] [? am ?] in situations where it might be 00:25:54.320 --> 00:25:56.960 optimal for both women and men to do it, 00:25:56.960 --> 00:25:59.690 conditional on their [INAUDIBLE].. 00:25:59.690 --> 00:26:00.920 Any questions on this study? 00:26:14.595 --> 00:26:18.900 OK, so then, let me just summarize a bit. 00:26:18.900 --> 00:26:22.950 So we saw large gender wage and earnings gaps that even 00:26:22.950 --> 00:26:25.140 persisted even until now. 00:26:25.140 --> 00:26:26.700 Substantial progress has been made 00:26:26.700 --> 00:26:28.980 due to the technological advances 00:26:28.980 --> 00:26:31.620 and other improvements, but sort of those persistent gender 00:26:31.620 --> 00:26:36.210 differences in many societies, including the US. 00:26:36.210 --> 00:26:38.490 Biased beliefs and identity concerns 00:26:38.490 --> 00:26:43.080 appear to play a particularly important role, in particular, 00:26:43.080 --> 00:26:46.050 in some issues such as educational differences 00:26:46.050 --> 00:26:49.080 and so on. 00:26:49.080 --> 00:26:51.750 And given the technological advances, 00:26:51.750 --> 00:26:54.662 some of these technological issues are less important now. 00:26:54.662 --> 00:26:57.120 But really, it seems to be that biased beliefs and identity 00:26:57.120 --> 00:27:01.110 concerns are at the center of explaining things in addition 00:27:01.110 --> 00:27:02.457 to the child penalty. 00:27:02.457 --> 00:27:04.290 But even the child penalty, you might argue, 00:27:04.290 --> 00:27:08.037 is driven by beliefs, and identity, and so on. 00:27:08.037 --> 00:27:09.870 And then there are these feedback mechanisms 00:27:09.870 --> 00:27:12.930 between demand and supplies of tasks 00:27:12.930 --> 00:27:14.730 that women and men are doing. 00:27:14.730 --> 00:27:16.980 And in particular, it seems to be that, again, beliefs 00:27:16.980 --> 00:27:19.147 are important in the sense of, like, it matters what 00:27:19.147 --> 00:27:20.550 people think other people do. 00:27:24.760 --> 00:27:28.570 And then that seems to create, essentially, these inequalities 00:27:28.570 --> 00:27:29.878 across gender. 00:27:29.878 --> 00:27:31.420 Now, if you want to sort of mitigate, 00:27:31.420 --> 00:27:33.400 or reduce, or eliminate the gender gap, 00:27:33.400 --> 00:27:35.560 it's really important to understand these issues. 00:27:35.560 --> 00:27:38.110 I think we have made quite a bit of progress 00:27:38.110 --> 00:27:42.310 in understanding what's going on, and identifying the issue. 00:27:42.310 --> 00:27:45.490 Now, I think the next steps are to try and understand 00:27:45.490 --> 00:27:49.330 what are policies that are in fact successful in helping 00:27:49.330 --> 00:27:51.400 us do that. 00:27:51.400 --> 00:27:55.120 So this lecture is about defaults, nudges, and frames. 00:27:55.120 --> 00:27:57.640 And originally, I had planned to also do mental accounting. 00:27:57.640 --> 00:28:00.220 But given that we didn't finish last time, 00:28:00.220 --> 00:28:03.750 I moved this to a later lecture, at least [INAUDIBLE].. 00:28:03.750 --> 00:28:05.507 OK, so where are we in the course? 00:28:05.507 --> 00:28:06.840 We talk a lot about preferences. 00:28:06.840 --> 00:28:09.550 We talked a lot about beliefs and the interaction of those, 00:28:09.550 --> 00:28:13.790 and sort of potential deviations from the classical model. 00:28:13.790 --> 00:28:16.290 Now, we're going to talk about non-standard decision-making. 00:28:16.290 --> 00:28:18.640 And one way to think about this is to say, 00:28:18.640 --> 00:28:21.335 even if you understand people's preferences very well, 00:28:21.335 --> 00:28:22.710 then you can understand these are 00:28:22.710 --> 00:28:24.510 non-standard preferences in some ways, 00:28:24.510 --> 00:28:26.490 and potentially biased beliefs. 00:28:26.490 --> 00:28:30.450 Even conditional on that, people might behave in some ways 00:28:30.450 --> 00:28:32.880 where they deviate from the neoclassical model. 00:28:32.880 --> 00:28:36.605 That is hard to explain just by deviations and preferences 00:28:36.605 --> 00:28:37.313 [INAUDIBLE]. 00:28:37.313 --> 00:28:38.730 So there are additional deviations 00:28:38.730 --> 00:28:41.440 from the neoclassical model that are beyond changes 00:28:41.440 --> 00:28:43.490 in preferences and beliefs. 00:28:43.490 --> 00:28:46.770 In particular, I'm going to talk now about frames, defaults, 00:28:46.770 --> 00:28:47.340 and nudges. 00:28:47.340 --> 00:28:49.530 Mental accounting is a similar case of that. 00:28:49.530 --> 00:28:52.530 We'll talk about this later. 00:28:52.530 --> 00:28:57.098 OK, and so the most famous paper in this space, 00:28:57.098 --> 00:28:58.890 or one of the most famous paper [INAUDIBLE] 00:28:58.890 --> 00:29:01.530 is about 401(k) savings. 00:29:01.530 --> 00:29:04.108 So companies offer these 401(k) savings. 00:29:04.108 --> 00:29:04.650 That's right. 00:29:04.650 --> 00:29:07.680 So it's in fact the most common voluntary savings vehicle 00:29:07.680 --> 00:29:08.880 in the US. 00:29:08.880 --> 00:29:12.660 What you do is you set aside some money for retirement, 00:29:12.660 --> 00:29:15.300 and you choose what's called the contribution rate. 00:29:15.300 --> 00:29:18.180 It's like what fraction of the income you want to contribute, 00:29:18.180 --> 00:29:22.200 and you choose the asset allocation. 00:29:22.200 --> 00:29:26.000 That is offered by companies-- by employers. 00:29:26.000 --> 00:29:28.010 Now, why are employers doing this? 00:29:28.010 --> 00:29:30.625 Because employers want to-- 00:29:30.625 --> 00:29:32.000 it's seen as sort of a nice thing 00:29:32.000 --> 00:29:37.110 that employers can do for their employees. 00:29:37.110 --> 00:29:39.260 It's potentially a way in which you 00:29:39.260 --> 00:29:44.570 can create some form of solidarity with your employees. 00:29:44.570 --> 00:29:47.960 In a way, you want your workers to do 00:29:47.960 --> 00:29:53.100 well in retirement beyond their working for you, and so on. 00:29:53.100 --> 00:29:56.340 And then, sort of overall, what companies often do 00:29:56.340 --> 00:29:58.560 is they offer matching contributions up 00:29:58.560 --> 00:29:59.450 to a threshold. 00:29:59.450 --> 00:30:03.660 This often incentivizes that, in fact, fairly strongly. 00:30:03.660 --> 00:30:05.760 There's also a penalty for early withdrawal. 00:30:05.760 --> 00:30:09.180 Why is there a penalty for early withdrawal? 00:30:09.180 --> 00:30:09.870 Yeah, exactly. 00:30:09.870 --> 00:30:12.415 It's like a soft commitment device in some ways, 00:30:12.415 --> 00:30:15.040 in the sense of-- or it's a hard commitment device in the sense 00:30:15.040 --> 00:30:17.100 that it's dominated. 00:30:17.100 --> 00:30:20.575 But essentially, it's like you want-- it's sort of a mixture. 00:30:20.575 --> 00:30:22.950 You could have if like a hard commitment, or a fully hard 00:30:22.950 --> 00:30:24.750 commitment, or very hard commitment device. 00:30:24.750 --> 00:30:29.310 But you could say, you cannot withdraw this until age 60, 00:30:29.310 --> 00:30:33.090 or something, or 55, or 65, whenever you retire. 00:30:33.090 --> 00:30:34.050 That's not what it is. 00:30:34.050 --> 00:30:36.870 Instead, there's a penalty that's often like 10%. 00:30:36.870 --> 00:30:41.150 And the penalty is there because you want to get people-- 00:30:41.150 --> 00:30:42.660 avoid that people-- 00:30:42.660 --> 00:30:44.700 what's called leakage, that people essentially 00:30:44.700 --> 00:30:47.790 withdraw money early, presumably because 00:30:47.790 --> 00:30:51.000 of self-control problems, present bias, and so on. 00:30:51.000 --> 00:30:52.690 There's lots of leakage, in fact, 00:30:52.690 --> 00:30:55.440 even though there's a 10% withdrawal. 00:30:55.440 --> 00:30:56.970 There's a 10% withdrawal as opposed 00:30:56.970 --> 00:30:59.650 to shutting it down entirely because sometimes people have 00:30:59.650 --> 00:31:00.150 shocks. 00:31:00.150 --> 00:31:01.650 They have health problems and so on. 00:31:01.650 --> 00:31:02.880 They need a bunch of money. 00:31:02.880 --> 00:31:05.400 And in those cases, of course, you want to allow this, 00:31:05.400 --> 00:31:07.320 or the company wants to allow that to people. 00:31:07.320 --> 00:31:09.240 So a 10% penalty tends to be sort 00:31:09.240 --> 00:31:11.760 of compromise between that. 00:31:11.760 --> 00:31:13.650 There's tax deferral, which is you pay, 00:31:13.650 --> 00:31:17.100 usually, a lower marginal tax rate during retirement, right? 00:31:17.100 --> 00:31:20.100 When people are 30, 40 they earn a lot of money 00:31:20.100 --> 00:31:23.310 compared to when they're 70 during retirement. 00:31:23.310 --> 00:31:26.520 So people can pay taxes when they receive 00:31:26.520 --> 00:31:29.100 the money at retirement, so to the extent 00:31:29.100 --> 00:31:32.700 that your marginal tax rate is lower then, 00:31:32.700 --> 00:31:34.630 you're going to save some money from that. 00:31:34.630 --> 00:31:36.422 So that's another reason why you might want 00:31:36.422 --> 00:31:39.200 to use your 401(k) savings. 00:31:39.200 --> 00:31:43.370 Now, what are some patterns 401(k) investments? 00:31:43.370 --> 00:31:46.110 2/3 of employees believe that they're saving too little 00:31:46.110 --> 00:31:47.510 when you just ask them. 00:31:47.510 --> 00:31:51.680 And 1/4 of these intends to raise their savings 00:31:51.680 --> 00:31:52.800 in the next two months. 00:31:52.800 --> 00:31:54.650 So that's sort of the typical thing that sort of smells 00:31:54.650 --> 00:31:56.692 like self-control problems, where you ask people, 00:31:56.692 --> 00:32:00.163 like, are you happy with your savings? 00:32:00.163 --> 00:32:01.580 Should you be saving more or less? 00:32:01.580 --> 00:32:04.730 Then people tend to say, oh, no, no, I want to really save more. 00:32:04.730 --> 00:32:06.290 Next two months, I'm going to do it. 00:32:06.290 --> 00:32:09.590 This is sort of the same as when you ask people about the gym. 00:32:09.590 --> 00:32:13.500 I [INAUDIBLE] exercise more every month. 00:32:13.500 --> 00:32:15.860 But it happens. 00:32:15.860 --> 00:32:17.690 Almost nobody follows through. 00:32:17.690 --> 00:32:20.780 In fact, the reported undersavers 00:32:20.780 --> 00:32:22.550 have low savings rates. 00:32:22.550 --> 00:32:25.220 You find similar patterns also in other surveys. 00:32:25.220 --> 00:32:27.770 If you're interested in more of the Choi et al survey, 00:32:27.770 --> 00:32:32.050 it does a very nice job at summarizing these patterns. 00:32:32.050 --> 00:32:36.070 Now, given these patterns, what are standard economics 00:32:36.070 --> 00:32:37.492 tools to increase savings? 00:32:37.492 --> 00:32:38.950 Suppose you are the social planner, 00:32:38.950 --> 00:32:42.130 or a company want to increase people's savings. 00:32:42.130 --> 00:32:45.340 What would standard economics 1401, 14-A, or whatever 00:32:45.340 --> 00:32:49.630 tell you what should we do to increase people's savings? 00:32:49.630 --> 00:32:51.160 How would you do that? 00:32:51.160 --> 00:32:54.070 First, the matching contribution is very much like an incentive, 00:32:54.070 --> 00:32:57.520 so, like, a very standard, straightforward incentive, Econ 00:32:57.520 --> 00:32:59.667 101 would tell you people react to incentives. 00:32:59.667 --> 00:33:01.000 So let's give people incentives. 00:33:01.000 --> 00:33:03.160 We provide matching contributions, and therefore 00:33:03.160 --> 00:33:03.740 people-- 00:33:03.740 --> 00:33:07.868 essentially increases the rate of return on savings. 00:33:07.868 --> 00:33:09.285 And these matching contributions-- 00:33:09.285 --> 00:33:12.030 I'll show you in a second-- tend to be very high, or fairly 00:33:12.030 --> 00:33:12.530 high. 00:33:12.530 --> 00:33:14.450 And so people should be doing it more 00:33:14.450 --> 00:33:17.110 if you make it more attractive [INAUDIBLE] 00:33:17.110 --> 00:33:19.353 under usual circumstances. 00:33:19.353 --> 00:33:20.270 What else could we do? 00:33:27.360 --> 00:33:30.900 And maybe that's not necessarily standard economics. 00:33:30.900 --> 00:33:33.360 Of course, one option will be, like, the default. 00:33:33.360 --> 00:33:35.890 But what other options could have or we do? 00:33:35.890 --> 00:33:37.880 What else could we do [INAUDIBLE] people? 00:33:37.880 --> 00:33:38.380 Right? 00:33:38.380 --> 00:33:40.200 So you could-- so the matching contribution 00:33:40.200 --> 00:33:42.492 is a way of doing that, essentially because I'm telling 00:33:42.492 --> 00:33:47.790 you I'm matching however much you're contributing by adding 00:33:47.790 --> 00:33:50.760 so much money in your account, and you're not 00:33:50.760 --> 00:33:52.050 supposed to withdraw it. 00:33:52.050 --> 00:33:55.210 So that's implicitly giving you a return. 00:33:55.210 --> 00:33:57.210 Another thing I think that you're already saying 00:33:57.210 --> 00:33:58.890 is what I have here as well, which 00:33:58.890 --> 00:34:03.065 is provide additional choices or better choices in some ways, 00:34:03.065 --> 00:34:05.190 or improving what's called our financial education. 00:34:05.190 --> 00:34:06.960 That's to say, maybe people are not 00:34:06.960 --> 00:34:08.230 investing in the right thing. 00:34:08.230 --> 00:34:10.360 And so maybe I could either give them 00:34:10.360 --> 00:34:12.300 better investment funds or better options 00:34:12.300 --> 00:34:13.960 that have higher returns. 00:34:13.960 --> 00:34:17.980 And by doing so, people will be inclined to save more. 00:34:17.980 --> 00:34:20.280 Or maybe I can explain to them better, for example, 00:34:20.280 --> 00:34:22.650 compound interest and so on, and sort of [INAUDIBLE] 00:34:22.650 --> 00:34:24.900 that people don't quite understand, perhaps 00:34:24.900 --> 00:34:26.250 because of lower education. 00:34:26.250 --> 00:34:28.167 Now, that's not necessarily standard economics 00:34:28.167 --> 00:34:29.958 in the sense of, like, people are confused. 00:34:29.958 --> 00:34:32.219 That's sort of not what standard economics would say. 00:34:32.219 --> 00:34:34.170 But it might well be that people are-- 00:34:34.170 --> 00:34:39.239 if you explain to them better what is compound interest, 00:34:39.239 --> 00:34:42.672 and if you can save now 5% of your income, how much will that 00:34:42.672 --> 00:34:44.130 be in 30 years from now, people are 00:34:44.130 --> 00:34:46.532 often surprised because that's very high. 00:34:46.532 --> 00:34:47.699 You could sort of get them-- 00:34:47.699 --> 00:34:49.440 provide them with additional choices, 00:34:49.440 --> 00:34:51.199 maybe make it more attractive for them. 00:34:51.199 --> 00:34:53.909 You could even sort of subsidize it and say, here's a fund, 00:34:53.909 --> 00:34:55.159 and I'm giving you more money. 00:34:55.159 --> 00:34:57.534 Notice that that would be quite expensive for the company 00:34:57.534 --> 00:34:58.450 to do over time. 00:34:58.450 --> 00:35:00.690 So companies tend to not do that. 00:35:00.690 --> 00:35:02.370 Now, it turns out, none of these tools 00:35:02.370 --> 00:35:03.760 tend to be very effective. 00:35:03.760 --> 00:35:07.230 So people have tried this, despite the fact that-- 00:35:07.230 --> 00:35:09.510 they have been matching contributions 00:35:09.510 --> 00:35:13.590 despite the effect of financial education, sort 00:35:13.590 --> 00:35:16.320 of information sessions, providing more choices, 00:35:16.320 --> 00:35:16.960 and so on. 00:35:16.960 --> 00:35:18.793 Notice that it actually sometimes backfires, 00:35:18.793 --> 00:35:20.040 because people get confused. 00:35:20.040 --> 00:35:22.930 There's too many choices, or what's called choice overload. 00:35:22.930 --> 00:35:26.250 So these things tend to not work particularly well. 00:35:26.250 --> 00:35:30.990 Now, one question again, why are companies actually trying 00:35:30.990 --> 00:35:33.067 to increase people's savings? 00:35:33.067 --> 00:35:34.650 So in some sense, you might say, well, 00:35:34.650 --> 00:35:37.095 we're offering-- here's your 401(k) savings. 00:35:37.095 --> 00:35:43.470 We'll offer it to you, but whoever wants to actually do it 00:35:43.470 --> 00:35:44.130 can use it. 00:35:44.130 --> 00:35:46.830 And otherwise, we really don't care that much. 00:35:46.830 --> 00:35:49.920 So why are companies still interested in doing this? 00:35:49.920 --> 00:35:51.323 Why are people paying this match? 00:35:51.323 --> 00:35:52.740 We had some answer already before, 00:35:52.740 --> 00:35:55.450 but that's actually not quite the answer why 00:35:55.450 --> 00:35:58.330 this is [? going. ?] 00:35:58.330 --> 00:36:00.290 So to be clear, there's two questions. 00:36:00.290 --> 00:36:02.665 One question that we talked about a little bit previously 00:36:02.665 --> 00:36:06.100 was, like, why might the company offer savings options anyway? 00:36:06.100 --> 00:36:08.320 And the second one is conditional on offering that-- 00:36:08.320 --> 00:36:09.820 why is the company really interested 00:36:09.820 --> 00:36:11.175 in increasing take-up? 00:36:11.175 --> 00:36:12.550 Because they say, well, whatever. 00:36:12.550 --> 00:36:13.110 We offer it. 00:36:13.110 --> 00:36:14.620 Some people like it, some people don't. 00:36:14.620 --> 00:36:16.203 If they don't like it, why do we care? 00:36:18.480 --> 00:36:20.960 So I always thought, you know-- 00:36:20.960 --> 00:36:24.013 when I first read about this, I thought companies are nice 00:36:24.013 --> 00:36:26.180 and they want to sort of be good to their employers, 00:36:26.180 --> 00:36:28.160 and they want the best for their workers. 00:36:28.160 --> 00:36:30.950 And you're already a lot more cynical in a sense of, 00:36:30.950 --> 00:36:33.350 like, you're kind of saying, how do we 00:36:33.350 --> 00:36:36.800 get workers to work a lot more? 00:36:36.800 --> 00:36:37.320 It could be. 00:36:37.320 --> 00:36:39.320 I mean, I haven't heard of what you were saying. 00:36:39.320 --> 00:36:42.470 But I think in principle, that could be a reason where-- 00:36:42.470 --> 00:36:45.260 in a way, I think companies like workers to be happy. 00:36:45.260 --> 00:36:49.310 And to the extent that if they consume more right now, 00:36:49.310 --> 00:36:52.142 that probably makes them happier and perhaps more productive, 00:36:52.142 --> 00:36:53.600 so then, in some ways, probably you 00:36:53.600 --> 00:36:56.000 have the incentives to have people not save too much. 00:36:56.000 --> 00:36:57.708 Because in some ways, you don't care that 00:36:57.708 --> 00:37:02.900 much about whether somebody who is 60 is particularly happy 00:37:02.900 --> 00:37:03.530 or has money. 00:37:03.530 --> 00:37:07.200 Because essentially, you can't really engage or you-- 00:37:07.200 --> 00:37:08.510 age discrimination is illegal. 00:37:08.510 --> 00:37:11.660 So you can't fire, like, a 57-year-old person who 00:37:11.660 --> 00:37:13.160 is doing their job reasonably well, 00:37:13.160 --> 00:37:16.890 but maybe is not as productive as you'd like them to be. 00:37:16.890 --> 00:37:22.070 And so to them, if that person has saved a lot of money, 00:37:22.070 --> 00:37:24.770 they probably are more likely to retire. 00:37:24.770 --> 00:37:27.530 You guys are more cynical than I am. 00:37:27.530 --> 00:37:32.730 So the reported reason for a lot of these policies 00:37:32.730 --> 00:37:35.790 is, in fact, the reason that there is IRS nondiscrimination 00:37:35.790 --> 00:37:36.820 rules. 00:37:36.820 --> 00:37:38.020 What does that mean? 00:37:38.020 --> 00:37:44.910 Essentially, by the IRS rules, it cannot be that people who 00:37:44.910 --> 00:37:50.430 are paid a lot can benefit from certain retirement and other 00:37:50.430 --> 00:37:53.280 schemes way more than people who are paid very little. 00:37:53.280 --> 00:37:56.190 Now it turns out that low income or low wage 00:37:56.190 --> 00:38:00.150 workers are much less likely to save 00:38:00.150 --> 00:38:04.640 in 401(k) and other savings schemes. 00:38:04.640 --> 00:38:07.310 Therefore, they're much less likely to receive 00:38:07.310 --> 00:38:10.460 any of these 401(k) matching and other contributions. 00:38:10.460 --> 00:38:12.440 And therefore, essentially, their companies 00:38:12.440 --> 00:38:14.990 tend to have way more money spent 00:38:14.990 --> 00:38:18.310 on sort of high paid employees than low paid employees. 00:38:18.310 --> 00:38:20.060 And there are some nondiscrimination rules 00:38:20.060 --> 00:38:23.360 by the IRS that says that's illegal. 00:38:23.360 --> 00:38:24.740 You can't do that. 00:38:24.740 --> 00:38:29.180 And therefore, companies are very keen on getting lower-- 00:38:29.180 --> 00:38:30.740 if you are like a CEO or something, 00:38:30.740 --> 00:38:33.330 you want your workers to earn very 00:38:33.330 --> 00:38:38.570 little to invest in 401(k) and other types of schemes 00:38:38.570 --> 00:38:40.970 that they get rewarded for, because that allows 00:38:40.970 --> 00:38:43.670 them, essentially, to pay the high paid employees 00:38:43.670 --> 00:38:46.958 higher bonuses, in these kinds of schemes as well. 00:38:46.958 --> 00:38:48.500 That's essentially one of the reasons 00:38:48.500 --> 00:38:50.780 why companies are very, very interested 00:38:50.780 --> 00:38:54.410 in increasing their 401(k) savings, in particular 00:38:54.410 --> 00:38:58.040 among workers with low wages. 00:38:58.040 --> 00:39:03.560 And that's exactly what the default to default policy's 00:39:03.560 --> 00:39:04.100 tend to do. 00:39:04.100 --> 00:39:05.600 Chad, did you have another question, 00:39:05.600 --> 00:39:07.854 or was that just your hand that's still up? 00:39:11.020 --> 00:39:14.330 OK, so let me move on. 00:39:14.330 --> 00:39:17.642 So why would you participate in 401(k) savings schemes? 00:39:17.642 --> 00:39:18.850 We already talked about this. 00:39:18.850 --> 00:39:20.770 What are the costs of nonparticipation? 00:39:20.770 --> 00:39:23.440 There are essentially three main reasons 00:39:23.440 --> 00:39:25.120 from the worker's perspective. 00:39:25.120 --> 00:39:26.800 There's foregone tax benefits. 00:39:26.800 --> 00:39:29.960 And tax benefits are, again, your marginal tax rate, 00:39:29.960 --> 00:39:31.600 usually while people are working, 00:39:31.600 --> 00:39:33.730 tends to be higher than the marginal tax rate 00:39:33.730 --> 00:39:35.240 when people are retiring. 00:39:35.240 --> 00:39:40.370 So essentially, by investing in 401(k) savings, 00:39:40.370 --> 00:39:44.060 they can defer taxes and save some taxes. 00:39:44.060 --> 00:39:49.530 Second, people forgo the employer match. 00:39:49.530 --> 00:39:51.290 I'll tell you about this in the second. 00:39:51.290 --> 00:39:52.730 And number three is-- 00:39:52.730 --> 00:39:54.320 that's a little more subtle, which 00:39:54.320 --> 00:39:57.470 is foregone consumption smoothing, which, essentially, 00:39:57.470 --> 00:40:00.440 is your marginal-- 00:40:00.440 --> 00:40:02.990 the marginal value of a dollar for you, 00:40:02.990 --> 00:40:06.220 while you're working at age 30 or 40, 00:40:06.220 --> 00:40:09.760 tends to be lower than the marginal value of a dollar 00:40:09.760 --> 00:40:11.367 once you're 70 or 80. 00:40:11.367 --> 00:40:13.450 The reason being that, essentially, you're richer. 00:40:13.450 --> 00:40:15.970 You have more money available when you're 30 or 40, 00:40:15.970 --> 00:40:18.790 so you actually want to smooth consumption to later in time. 00:40:18.790 --> 00:40:22.480 Of course, there's a discounting motive going the other way. 00:40:22.480 --> 00:40:26.320 But it shouldn't be that, essentially, at age 59 or 64, 00:40:26.320 --> 00:40:28.630 you earn a lot of money and consume a lot, and then 00:40:28.630 --> 00:40:33.370 the year after, once you retire, your consumption drops a lot. 00:40:33.370 --> 00:40:36.100 Economists would say you should smooth this out by, 00:40:36.100 --> 00:40:38.200 essentially, saving some money to the future. 00:40:38.200 --> 00:40:41.410 And 401(k) savings [INAUDIBLE] might help you with that. 00:40:41.410 --> 00:40:43.900 Now, why do companies care? 00:40:43.900 --> 00:40:44.950 I already said that. 00:40:44.950 --> 00:40:49.120 Essentially-- whoops, sorry, going back. 00:40:49.120 --> 00:40:51.430 Non-highly compensated employees don't save enough, 00:40:51.430 --> 00:40:53.950 or don't save very much, in particular in new schemes. 00:40:53.950 --> 00:40:56.020 And the IRS nondiscrimination tests-- 00:40:56.020 --> 00:40:57.730 has essentially nondiscrimination tests 00:40:57.730 --> 00:41:02.685 in pension plans that precisely try to prevent that. 00:41:02.685 --> 00:41:04.060 So really, what you want to do is 00:41:04.060 --> 00:41:10.050 you want to get your low income workers to save. 00:41:10.050 --> 00:41:12.960 OK, so now here comes the paper by Madrian and Shea. 00:41:12.960 --> 00:41:16.620 That's a very successful and one of the most successful papers 00:41:16.620 --> 00:41:18.360 in behavioral economics. 00:41:18.360 --> 00:41:24.117 The reason being that, A, standard economics has sort of 00:41:24.117 --> 00:41:25.950 failed in some ways, in the sense of saying, 00:41:25.950 --> 00:41:29.010 like, we tried matching contributions, 00:41:29.010 --> 00:41:31.590 we tried giving people education or information, 00:41:31.590 --> 00:41:33.690 and so on, and so forth, and none of these things 00:41:33.690 --> 00:41:36.130 have worked very well. 00:41:36.130 --> 00:41:39.112 And then instead, something that shouldn't matter-- 00:41:39.112 --> 00:41:41.320 which is what I'm going to show you in a second-- the 00:41:41.320 --> 00:41:44.500 defaults mattered a lot, and had huge effects, 00:41:44.500 --> 00:41:48.320 which is very hard for standard economics to explain. 00:41:48.320 --> 00:41:50.287 And then on top of that, this is in a domain 00:41:50.287 --> 00:41:51.620 that we really care about a lot. 00:41:51.620 --> 00:41:53.680 Savings is one of the most important choices 00:41:53.680 --> 00:41:56.150 that economists have considered. 00:41:56.150 --> 00:41:57.700 And so that's a very good example 00:41:57.700 --> 00:42:02.500 of an early example of an aspect of the economics, 00:42:02.500 --> 00:42:04.270 in this case default, that really 00:42:04.270 --> 00:42:06.670 matters in some ways that's hard to explain 00:42:06.670 --> 00:42:08.020 for standard economics. 00:42:08.020 --> 00:42:10.270 And the standard tools of economics 00:42:10.270 --> 00:42:13.350 seem to not have been working very well. 00:42:13.350 --> 00:42:15.570 OK, so what does the paper actually do? 00:42:15.570 --> 00:42:19.620 It's a large publicly-traded, fortune 500 healthcare company. 00:42:19.620 --> 00:42:22.350 You can enroll in 401(k) savings plans any day 00:42:22.350 --> 00:42:24.660 by essentially filling out an enrollment form, 00:42:24.660 --> 00:42:27.330 or calling the 401(k) record keeper. 00:42:27.330 --> 00:42:28.855 What does that mean? 00:42:28.855 --> 00:42:30.480 Essentially, you call somebody and say, 00:42:30.480 --> 00:42:32.280 I want you to invest in 401(k) savings 00:42:32.280 --> 00:42:33.570 when you're in this company. 00:42:33.570 --> 00:42:37.430 And you're going to say, I'm going to-- 00:42:37.430 --> 00:42:40.130 I want to save, say, 5% of my earnings. 00:42:40.130 --> 00:42:42.260 I want to save every month. 00:42:42.260 --> 00:42:43.850 Or you could fill out a form. 00:42:43.850 --> 00:42:46.560 Now, these days, a lot of this is online. 00:42:46.560 --> 00:42:49.310 So if at MIT, you want to change your 401(k) savings, 00:42:49.310 --> 00:42:51.800 you essentially have to fill out an online form, 00:42:51.800 --> 00:42:55.350 and change your online allocation [? potential. ?] 00:42:55.350 --> 00:42:59.210 So there's potentially small transaction costs involved. 00:42:59.210 --> 00:43:02.090 But notice that the transaction cost tends to be very minor, 00:43:02.090 --> 00:43:04.580 in a sense, like, it's going to take you maybe 10 minutes, 00:43:04.580 --> 00:43:07.110 maybe 20 minutes-- maybe if you think about it for a while, 00:43:07.110 --> 00:43:08.120 it takes you an hour-- 00:43:08.120 --> 00:43:12.220 but really, it's a very minor cost of time 00:43:12.220 --> 00:43:15.910 overall that this costs you compared 00:43:15.910 --> 00:43:20.780 to the potentially huge benefits of employer matches and so on. 00:43:20.780 --> 00:43:23.170 Now, what are these employer matches? 00:43:23.170 --> 00:43:26.290 In this particular company, it's a 50% matching contribution 00:43:26.290 --> 00:43:28.210 for the first 6%. 00:43:28.210 --> 00:43:29.920 So again, what are these percentages? 00:43:29.920 --> 00:43:33.820 The percentages are essentially the fraction of your income 00:43:33.820 --> 00:43:37.620 that you'd like to contribute to these savings. 00:43:37.620 --> 00:43:42.510 For example, 5% or 3%, or 7% is what you're saving. 00:43:42.510 --> 00:43:44.130 And now the company says they're going 00:43:44.130 --> 00:43:48.360 to match 50% for the first 6%. 00:43:48.360 --> 00:43:51.180 For example, if an employee chooses 4%, 00:43:51.180 --> 00:43:53.520 the company pays an additional 2% 00:43:53.520 --> 00:43:57.100 into that savings account right away. 00:43:57.100 --> 00:43:58.830 So that's actually quite a bit of money. 00:43:58.830 --> 00:44:01.980 If an employee chooses 10%, the company 00:44:01.980 --> 00:44:05.460 pays an additional 3%, because that employee 00:44:05.460 --> 00:44:07.380 is above the cap of 6%. 00:44:07.380 --> 00:44:11.580 So you cannot get more than 3% from the company. 00:44:11.580 --> 00:44:13.140 Other companies these days have even, 00:44:13.140 --> 00:44:17.940 like, 100% matching contribution for 5% or the like. 00:44:17.940 --> 00:44:20.020 That tends to be fairly common. 00:44:20.020 --> 00:44:23.790 So for example, MIT has 100% matching contribution 00:44:23.790 --> 00:44:28.610 for the first, I think, 5%. 00:44:28.610 --> 00:44:30.920 In this specific company, the employees 00:44:30.920 --> 00:44:34.370 are first eligible after one year of employment 00:44:34.370 --> 00:44:36.355 before the change happened of the policy 00:44:36.355 --> 00:44:38.330 that I'm going to talk about in a second. 00:44:38.330 --> 00:44:41.090 Now, notice that this is a terrible policy 00:44:41.090 --> 00:44:43.130 from a behavioral economics perspective, 00:44:43.130 --> 00:44:45.680 in terms of if you wanted people to sign up and go 00:44:45.680 --> 00:44:47.543 do this, that's not what you would do. 00:44:47.543 --> 00:44:50.210 If I'm telling you, like, here's a thing that I want you to sign 00:44:50.210 --> 00:44:53.540 up for, in a year from now please come back and do it, 00:44:53.540 --> 00:44:56.270 well, in a year from now, people might forget. 00:44:56.270 --> 00:44:57.620 People might procrastinate. 00:44:57.620 --> 00:45:01.590 People might be busy with other things. 00:45:01.590 --> 00:45:06.742 So it's not a policy that's great to do to start with 00:45:06.742 --> 00:45:07.700 to get people involved. 00:45:07.700 --> 00:45:09.200 And in some sense, there's no wonder 00:45:09.200 --> 00:45:12.950 that participation early on was kind of low. 00:45:12.950 --> 00:45:15.230 Now, the company does that because turnover 00:45:15.230 --> 00:45:16.130 tends to be high. 00:45:16.130 --> 00:45:18.050 And you try to avoid paying people 00:45:18.050 --> 00:45:20.013 early on that might leave anyway. 00:45:20.013 --> 00:45:21.680 And you have to deal with the paperwork, 00:45:21.680 --> 00:45:23.127 and so on and so forth. 00:45:23.127 --> 00:45:25.460 Notice that that might be exactly the wrong thing to do, 00:45:25.460 --> 00:45:28.610 because once people have paid into their 401(k) savings, 00:45:28.610 --> 00:45:31.280 maybe that creates some loyalty and makes workers to stay 00:45:31.280 --> 00:45:32.750 more at the company anyway. 00:45:32.750 --> 00:45:35.240 But for what it's worth, in this particular case, 00:45:35.240 --> 00:45:40.160 employees were only eligible and one year after employment. 00:45:40.160 --> 00:45:43.000 Now, then there's a discontinuity 00:45:43.000 --> 00:45:47.830 of the 401(k) plan default based on the date of hire. 00:45:47.830 --> 00:45:49.540 So here's the old cohort-- 00:45:49.540 --> 00:45:53.050 the window cohort, as I call it-- and the new cohort. 00:45:53.050 --> 00:45:57.910 So the old cohort are people who are hired between 1st of April, 00:45:57.910 --> 00:46:00.480 '96 and 31st of March, '97. 00:46:00.480 --> 00:46:03.110 So they are essentially people who have been previously hired. 00:46:03.110 --> 00:46:04.960 This is what I just told you. 00:46:04.960 --> 00:46:08.140 You can, after one year-- 00:46:08.140 --> 00:46:11.580 after being hired after one year, you can-- 00:46:11.580 --> 00:46:13.060 you're not automatically enrolled, 00:46:13.060 --> 00:46:15.380 but you can essentially just call somebody and say, 00:46:15.380 --> 00:46:18.430 I would like to start saving in my 401(k) savings. 00:46:18.430 --> 00:46:20.890 Or you could fill out this form. 00:46:20.890 --> 00:46:22.390 Then, there is the new cohort, which 00:46:22.390 --> 00:46:24.940 essentially is automatic enrollment, which 00:46:24.940 --> 00:46:28.690 is everything is exactly the same, but by the date of hire. 00:46:28.690 --> 00:46:30.760 So when you're hired immediately, 00:46:30.760 --> 00:46:32.170 you're automatically enrolled. 00:46:32.170 --> 00:46:35.150 So they're not asking you. 00:46:35.150 --> 00:46:36.650 They're giving you some information, 00:46:36.650 --> 00:46:38.470 but they say, unless you change, unless you 00:46:38.470 --> 00:46:40.810 want to make a change, you're going 00:46:40.810 --> 00:46:43.810 to be automatically enrolled immediately. 00:46:43.810 --> 00:46:47.020 And when you automatically enrolled somebody, 00:46:47.020 --> 00:46:49.750 then you need to also specify where the money goes to. 00:46:49.750 --> 00:46:51.740 So they have an automatic enrollment. 00:46:51.740 --> 00:46:54.100 You need to choose the contribution rate, which is 00:46:54.100 --> 00:46:55.970 the default contribution rate. 00:46:55.970 --> 00:46:58.690 And they need to have a default fund allocation, which 00:46:58.690 --> 00:47:01.870 is-- so they have a default contribution rate which is 3%. 00:47:01.870 --> 00:47:03.940 And you need to put the money somewhere, right? 00:47:03.940 --> 00:47:06.340 So if I'm automatically doing something for you 00:47:06.340 --> 00:47:08.590 with your money, I need to put the money somewhere. 00:47:08.590 --> 00:47:10.690 What the company is doing is the company 00:47:10.690 --> 00:47:15.190 puts the money into the money market fund. 00:47:15.190 --> 00:47:17.350 Is that a good idea, a bad idea? 00:47:17.350 --> 00:47:18.850 Why is the company putting the money 00:47:18.850 --> 00:47:19.990 into the money market fund? 00:47:19.990 --> 00:47:22.448 Is that what you're supposed to be doing with your savings? 00:47:22.448 --> 00:47:34.340 [INAUDIBLE] Or maybe first explain 00:47:34.340 --> 00:47:36.410 what is a money market fund, and then tell 00:47:36.410 --> 00:47:37.610 is it a good or bad idea. 00:47:37.610 --> 00:47:40.770 Somebody says they saw dot come bubble coming, potentially. 00:47:40.770 --> 00:47:44.340 But I think if you save for retirement, what should you do? 00:47:44.340 --> 00:47:48.060 Here's free investment advice for everybody. 00:47:48.060 --> 00:47:48.923 What should you do? 00:47:48.923 --> 00:47:50.340 What are people telling you, like, 00:47:50.340 --> 00:47:52.063 if you go to somebody who does finance? 00:47:52.063 --> 00:47:53.730 [INAUDIBLE] but essentially, what people 00:47:53.730 --> 00:47:55.770 would argue you should be doing is 00:47:55.770 --> 00:47:57.960 you should invest in stocks or some forms 00:47:57.960 --> 00:48:03.480 of diversified portfolio of stocks. 00:48:03.480 --> 00:48:05.970 You should buy, essentially, the stock market, S&P 500, 00:48:05.970 --> 00:48:08.820 or the world stock market, or the like, 00:48:08.820 --> 00:48:12.750 which essentially is risky, but also has a much higher return. 00:48:12.750 --> 00:48:17.910 Now, given that if you started investing at age 25 or 30, 00:48:17.910 --> 00:48:20.160 if you do that for 30, 40 years, that 00:48:20.160 --> 00:48:24.160 has a very likely very high long-run return, and a much 00:48:24.160 --> 00:48:26.160 higher long-run return than you will have if you 00:48:26.160 --> 00:48:28.160 invest in the money market. 00:48:28.160 --> 00:48:32.170 Now, there's a question of what is the optimal risk and so on. 00:48:32.170 --> 00:48:36.870 But investing, nobody-- no investment advisor 00:48:36.870 --> 00:48:38.740 in their right mind, maybe perhaps partially 00:48:38.740 --> 00:48:41.480 because they want to make money, but I think including people 00:48:41.480 --> 00:48:43.570 who want the best for you will tell you 00:48:43.570 --> 00:48:46.430 you should invest everything and the money market. 00:48:46.430 --> 00:48:48.843 Now why are the companies doing that? 00:48:48.843 --> 00:48:51.010 Essentially, the company is worried about liability, 00:48:51.010 --> 00:48:53.500 and about getting sued, or getting, at least, in trouble 00:48:53.500 --> 00:48:55.510 with their employees. 00:48:55.510 --> 00:48:57.160 If they default-- so essentially, 00:48:57.160 --> 00:49:01.090 if I'm not offering any retirement savings, 00:49:01.090 --> 00:49:04.390 then I'm like, of course, that's not a big risk to take. 00:49:04.390 --> 00:49:06.160 If I'm in a sense saying, I'm hiring you, 00:49:06.160 --> 00:49:08.230 and I'm putting your money without really 00:49:08.230 --> 00:49:09.760 getting explicit consent for you, 00:49:09.760 --> 00:49:12.040 without you explicitly saying you want it, 00:49:12.040 --> 00:49:16.120 and putting your money into some investment fund, potentially 00:49:16.120 --> 00:49:19.210 a risky investment fund, and that thing essentially crashes, 00:49:19.210 --> 00:49:20.950 and people lose a lot of money, they're 00:49:20.950 --> 00:49:23.080 going to get really upset with you, potentially. 00:49:23.080 --> 00:49:25.240 And that's, from the company's perspective, 00:49:25.240 --> 00:49:26.653 just not worth doing. 00:49:26.653 --> 00:49:28.570 Essentially, the company wants to help people. 00:49:28.570 --> 00:49:33.270 Again, remember a part of the motive of the company 00:49:33.270 --> 00:49:35.970 was just to get people to contribute in the first place, 00:49:35.970 --> 00:49:40.130 to essentially get around the IRS nondiscrimination rules. 00:49:40.130 --> 00:49:43.840 And so the company is really not necessarily that interested 00:49:43.840 --> 00:49:47.810 in high returns for their workers. 00:49:47.810 --> 00:49:50.130 And in particular, companies worry potentially about, 00:49:50.130 --> 00:49:52.130 essentially, the stock market crashing, and then 00:49:52.130 --> 00:49:54.297 sort of people getting really upset with them, which 00:49:54.297 --> 00:49:55.589 would be quite costly for them. 00:49:55.589 --> 00:49:57.297 And then they would be, like, why did you 00:49:57.297 --> 00:49:58.700 put the money in this risky thing 00:49:58.700 --> 00:50:01.880 while in fact, you could have put it in the money market, 00:50:01.880 --> 00:50:02.612 and so on? 00:50:02.612 --> 00:50:04.070 And the reason being is essentially 00:50:04.070 --> 00:50:05.720 because there's no explicit consent, 00:50:05.720 --> 00:50:09.230 because it's essentially a default option where 00:50:09.230 --> 00:50:12.420 the default is such that you're automatically enrolled. 00:50:12.420 --> 00:50:14.360 So unless you tell me otherwise, you're 00:50:14.360 --> 00:50:16.760 going to be-- the money's going to put there. 00:50:16.760 --> 00:50:20.300 And so there's never something where 00:50:20.300 --> 00:50:25.800 the person says, yes, I want the money to be invested in x or y. 00:50:25.800 --> 00:50:28.830 So then, this here is the main result 00:50:28.830 --> 00:50:31.080 of the paper, which is the participation 00:50:31.080 --> 00:50:35.100 rates in 401(k) savings accounts are dramatically 00:50:35.100 --> 00:50:37.440 higher with automatic enrollment compared 00:50:37.440 --> 00:50:39.640 to the previous regime. 00:50:39.640 --> 00:50:41.910 So you see here, this is the old cohort. 00:50:41.910 --> 00:50:43.350 This is the window cohort. 00:50:43.350 --> 00:50:44.850 And these are previous cohorts. 00:50:44.850 --> 00:50:47.910 So you see that prior to automatic enrollment, 00:50:47.910 --> 00:50:49.950 the participation increases-- 00:50:49.950 --> 00:50:51.188 or increased with the tenure. 00:50:51.188 --> 00:50:53.230 That is to say, the longer you're at the company, 00:50:53.230 --> 00:50:54.870 the higher the fraction of people 00:50:54.870 --> 00:50:57.900 who participate in 401(k) savings. 00:50:57.900 --> 00:51:01.380 But even people who have been in the company for 20 plus years 00:51:01.380 --> 00:51:06.030 have only, like, a contribution rate of about 83%. 00:51:06.030 --> 00:51:07.830 Now, if you do automatic enrollment, which 00:51:07.830 --> 00:51:14.267 is getting people enrolled-- but people 00:51:14.267 --> 00:51:15.850 are free to choose whatever they want. 00:51:15.850 --> 00:51:18.880 If they don't want to invest money into the 401(k) savings 00:51:18.880 --> 00:51:19.630 account. 00:51:19.630 --> 00:51:21.950 They can opt out at any point in time. 00:51:21.950 --> 00:51:24.790 But when you do that, people get essentially way 00:51:24.790 --> 00:51:28.150 more likely to be enrolled. 00:51:28.150 --> 00:51:31.720 The participation rate is as high as 86%. 00:51:31.720 --> 00:51:33.940 So there are essentially dramatic differences 00:51:33.940 --> 00:51:36.520 in what you would argue is a very important choice, which 00:51:36.520 --> 00:51:39.550 is, if you think about what are important choices in your life, 00:51:39.550 --> 00:51:42.027 savings choice is one of the most important ones. 00:51:42.027 --> 00:51:43.360 So there's dramatic differences. 00:51:43.360 --> 00:51:45.220 And when you do automatic enrollment, 00:51:45.220 --> 00:51:48.910 people are way more likely to enroll than if not. 00:51:48.910 --> 00:51:51.790 Now, in addition-- sorry. 00:51:51.790 --> 00:51:55.430 And then this is here is, I guess, the part 00:51:55.430 --> 00:51:57.140 about the low income workers. 00:51:57.140 --> 00:51:58.850 When you look at-- 00:51:58.850 --> 00:52:00.560 this is-- when you look at the first two 00:52:00.560 --> 00:52:05.250 columns of this table, here you see these effects. 00:52:05.250 --> 00:52:07.605 So first you see, this is the window cohort here. 00:52:07.605 --> 00:52:09.230 This is the cohort that was essentially 00:52:09.230 --> 00:52:11.720 before the change was done. 00:52:11.720 --> 00:52:14.600 And here is the new cohort, which 00:52:14.600 --> 00:52:18.470 is the cohort that received automatic enrollment. 00:52:18.470 --> 00:52:23.240 The difference is dramatic from like 37% to 86%. 00:52:23.240 --> 00:52:26.630 And this is now by compensation levels of workers. 00:52:26.630 --> 00:52:28.880 And what you see here is, in the window cohort, 00:52:28.880 --> 00:52:33.800 you see this huge gradient here by compensation. 00:52:33.800 --> 00:52:35.870 So workers who are-- and this is before 00:52:35.870 --> 00:52:37.310 the automatic enrollment. 00:52:37.310 --> 00:52:41.330 Workers who received fewer than $20,000 00:52:41.330 --> 00:52:45.350 per year, only 12.5% of them actually 00:52:45.350 --> 00:52:48.110 were participating in 401(k) savings to start with. 00:52:48.110 --> 00:52:51.230 And among people who earned a lot already anyway, 00:52:51.230 --> 00:52:53.047 this thing was, like, 68%. 00:52:53.047 --> 00:52:54.380 There's a huge discrepancy here. 00:52:54.380 --> 00:53:00.300 And this is precisely where the IRS discrimination 00:53:00.300 --> 00:53:01.490 rules were [? fighting. ?] 00:53:01.490 --> 00:53:04.310 Now, but if you look at after the enrollment, 00:53:04.310 --> 00:53:06.740 there's still-- notice that there's still some gradient. 00:53:06.740 --> 00:53:09.770 There's still, essentially, like, a higher participation 00:53:09.770 --> 00:53:11.930 rate among the high paid employees. 00:53:11.930 --> 00:53:14.480 But the grading is much flatter, because essentially, 00:53:14.480 --> 00:53:19.670 so many among the low income workers or low wage workers 00:53:19.670 --> 00:53:21.780 are now enrolled as well. 00:53:21.780 --> 00:53:24.620 So there's huge effect, and the effective is disproportionately 00:53:24.620 --> 00:53:28.070 large among low income workers. 00:53:28.070 --> 00:53:31.140 What are potential reasons for that? 00:53:31.140 --> 00:53:32.528 So they have more likely-- 00:53:32.528 --> 00:53:34.070 essentially, their credit constraints 00:53:34.070 --> 00:53:35.240 are more likely to bind. 00:53:35.240 --> 00:53:37.490 Or they have a high marginal utility of money, 00:53:37.490 --> 00:53:40.340 and therefore, they might be less inclined to save. 00:53:40.340 --> 00:53:42.140 Notice that low income workers also 00:53:42.140 --> 00:53:45.227 have a high marginal utility of income in the future. 00:53:45.227 --> 00:53:47.060 So in some ways, it's not obvious, actually, 00:53:47.060 --> 00:53:48.920 that when you think about-- [? because when you ?] write 00:53:48.920 --> 00:53:51.650 down a model, you think about should you save right now 00:53:51.650 --> 00:53:54.835 versus consume money-- 00:53:54.835 --> 00:53:58.030 so consume versus save. 00:53:58.030 --> 00:54:00.740 You will get, essentially, what this-- what this depends on 00:54:00.740 --> 00:54:03.350 is the ratio of your marginal utility right now 00:54:03.350 --> 00:54:04.970 versus in the future. 00:54:04.970 --> 00:54:07.430 And the marginal utility of poor workers in the future 00:54:07.430 --> 00:54:08.347 will also be high. 00:54:08.347 --> 00:54:10.430 So it's not obvious that they shouldn't be saving. 00:54:10.430 --> 00:54:11.330 But I think it's right that we're 00:54:11.330 --> 00:54:12.747 saying they have more emergencies, 00:54:12.747 --> 00:54:16.290 and more reasons to essentially not want the money right now. 00:54:16.290 --> 00:54:19.770 So one thing could be just it's mechanical in the sense of, 00:54:19.770 --> 00:54:22.190 in some ways, it could just be that for whatever reason, 00:54:22.190 --> 00:54:25.010 the poor are not saving to start with. 00:54:25.010 --> 00:54:26.690 Maybe that's in part due to tenure. 00:54:26.690 --> 00:54:28.550 Maybe it's due to some other reasons 00:54:28.550 --> 00:54:33.380 that we don't quite understand. 00:54:33.380 --> 00:54:37.370 But it might also be that the poor might 00:54:37.370 --> 00:54:41.650 be more prone to default effects, which could be in part 00:54:41.650 --> 00:54:42.680 what Carmen was saying. 00:54:42.680 --> 00:54:45.620 They're sort of-- in a way, perhaps 00:54:45.620 --> 00:54:48.170 financial sophistication, or education, 00:54:48.170 --> 00:54:50.420 or information-- just what's the right thing to do-- 00:54:50.420 --> 00:54:51.410 might be lower. 00:54:51.410 --> 00:54:52.430 And you might, as in, like, I don't 00:54:52.430 --> 00:54:53.460 understand what's going on. 00:54:53.460 --> 00:54:54.980 So I'm just doing what the company does for me 00:54:54.980 --> 00:54:56.240 and just hope for the best. 00:54:56.240 --> 00:54:58.340 And then you might just go with whatever 00:54:58.340 --> 00:55:01.370 that is, and you're less confident in making different-- 00:55:01.370 --> 00:55:04.022 or overriding such choices. 00:55:04.022 --> 00:55:05.480 Another explanation-- and I'm going 00:55:05.480 --> 00:55:07.710 to talk about this when we talk about poverty a bit-- 00:55:07.710 --> 00:55:11.660 which is the idea that poverty taxes people's bandwidth 00:55:11.660 --> 00:55:12.360 and attention. 00:55:12.360 --> 00:55:13.735 That's to say, like, essentially, 00:55:13.735 --> 00:55:15.727 being poor is really hard in various ways. 00:55:15.727 --> 00:55:17.810 You have to struggle with so many different things 00:55:17.810 --> 00:55:19.670 about paying your bills, and so on and so forth, 00:55:19.670 --> 00:55:21.670 which is precisely kind of what Jose [INAUDIBLE] 00:55:21.670 --> 00:55:23.800 was saying in part. 00:55:23.800 --> 00:55:25.807 Your marginal utility of money might be high, 00:55:25.807 --> 00:55:27.390 and you're really concerned with that. 00:55:27.390 --> 00:55:29.840 And you worried about feeding your children, 00:55:29.840 --> 00:55:31.203 and so on and so forth. 00:55:31.203 --> 00:55:32.870 And it's just really hard to find a time 00:55:32.870 --> 00:55:35.045 to think about stuff carefully. 00:55:35.045 --> 00:55:36.920 And therefore, you might, again, sort of just 00:55:36.920 --> 00:55:38.682 go with the default. Because you just 00:55:38.682 --> 00:55:40.640 don't have the bandwidth-- the mental bandwidth 00:55:40.640 --> 00:55:46.250 to think about what's best for you and override that. 00:55:46.250 --> 00:55:47.750 So that's an open question, in fact, 00:55:47.750 --> 00:55:52.250 whether the poor are more likely to be prone to default effects. 00:55:52.250 --> 00:55:56.570 But I think what's almost surely the case, or what's 00:55:56.570 --> 00:55:59.510 been shown in various studies, is that these effects tend 00:55:59.510 --> 00:56:02.630 to have larger effects among poor, low compensation 00:56:02.630 --> 00:56:04.820 workers, which is precisely one of the reasons 00:56:04.820 --> 00:56:08.840 why they were so popular overall. 00:56:08.840 --> 00:56:12.230 OK, so then in addition, not only 00:56:12.230 --> 00:56:15.770 are there large effects on the contribution decision overall. 00:56:15.770 --> 00:56:18.890 It's like, do you want your the participation decision overall? 00:56:18.890 --> 00:56:21.170 Do you want to participate versus not? 00:56:21.170 --> 00:56:24.720 Like, do you want to contribute any money versus not? 00:56:24.720 --> 00:56:27.650 But also there seem to be large effects on the contribution 00:56:27.650 --> 00:56:28.740 rate. 00:56:28.740 --> 00:56:31.250 That is to say, I think I told you-- 00:56:31.250 --> 00:56:35.037 remember, I told you the default contribution rate was 3%. 00:56:35.037 --> 00:56:36.620 So if you were automatically enrolled, 00:56:36.620 --> 00:56:42.200 the company would just give you a 3% contribution standard. 00:56:42.200 --> 00:56:45.810 You could change that to 4%, 2%, 7%, whatever you want to do. 00:56:45.810 --> 00:56:48.230 But the default would be 3%. 00:56:48.230 --> 00:56:51.220 And you see, essentially, the majority of people-- 00:56:51.220 --> 00:56:53.780 the fraction of employees in the new cohort, 00:56:53.780 --> 00:56:58.253 which is the automatic enrollment, chooses 3%. 00:56:58.253 --> 00:57:00.420 There's another thing that's quite interesting here. 00:57:00.420 --> 00:57:03.860 What you see is that among people who 00:57:03.860 --> 00:57:05.462 arguably would have chosen-- 00:57:05.462 --> 00:57:07.045 if you just look at the window cohort, 00:57:07.045 --> 00:57:09.530 there's some people, for example, who chose 6%. 00:57:09.530 --> 00:57:12.800 11% of people in the window cohort-- 00:57:12.800 --> 00:57:15.980 that's the cohort that was just before the automatic 00:57:15.980 --> 00:57:17.030 enrollment-- 00:57:17.030 --> 00:57:21.470 11% of people chose 6%. 00:57:21.470 --> 00:57:24.590 That fraction actually goes down to 7%. 00:57:24.590 --> 00:57:28.640 That is to say, some people would have chosen more than 3% 00:57:28.640 --> 00:57:30.560 in the absence of automatic enrollment, 00:57:30.560 --> 00:57:33.055 now they are moving down to 3%. 00:57:33.055 --> 00:57:34.430 So there is some effect-- there's 00:57:34.430 --> 00:57:37.855 a bunch of mass coming from 0% moving to 3%. 00:57:37.855 --> 00:57:39.230 But there's also some mass coming 00:57:39.230 --> 00:57:41.000 from here that moves from, essentially, 00:57:41.000 --> 00:57:43.910 positive amounts down to 3%. 00:57:43.910 --> 00:57:46.250 So there's sort of very heterogeneous effect. 00:57:46.250 --> 00:57:47.840 Some people, or quite a few people, 00:57:47.840 --> 00:57:50.840 increased their savings from very low rates, or 0 rates, 00:57:50.840 --> 00:57:51.393 to 3%. 00:57:51.393 --> 00:57:53.810 But there's always another other effect that, essentially, 00:57:53.810 --> 00:57:56.630 some people who would have sat down and done 00:57:56.630 --> 00:57:58.730 the choice themselves, they would have probably 00:57:58.730 --> 00:58:01.410 chosen something like 6%, 7%, whatever, 00:58:01.410 --> 00:58:05.570 even 15%, and some of them have moved down to 3% 00:58:05.570 --> 00:58:07.680 by the automatic enrollment. 00:58:07.680 --> 00:58:09.960 So there's some negative effect on savings 00:58:09.960 --> 00:58:13.350 coming from that, potentially. 00:58:13.350 --> 00:58:18.860 In addition, the asset allocation, here, 00:58:18.860 --> 00:58:23.410 people essentially predominantly just choose the default. 00:58:23.410 --> 00:58:27.450 Here you see, essentially, the assets or stocks, bonds, 00:58:27.450 --> 00:58:28.420 and money market. 00:58:28.420 --> 00:58:31.190 Think about money market essentially as like a 0%-- 00:58:31.190 --> 00:58:32.720 or a close to 0%-- 00:58:32.720 --> 00:58:36.370 very safe option. 00:58:36.370 --> 00:58:39.740 And in the new cohort, 80% of people-- 00:58:39.740 --> 00:58:42.680 I'm not sure how well you can see this-- but 80% of people 00:58:42.680 --> 00:58:44.660 choose the money market, which essentially 00:58:44.660 --> 00:58:47.960 is exactly what the company is choosing for them. 00:58:47.960 --> 00:58:50.090 Well, if you have-- 00:58:50.090 --> 00:58:51.710 in the other cohorts, this is all 00:58:51.710 --> 00:58:53.390 conditional on participating. 00:58:53.390 --> 00:58:59.170 The fraction who chooses stocks and bonds is way, way higher. 00:58:59.170 --> 00:59:02.580 And as we discussed, the long-run return 00:59:02.580 --> 00:59:05.730 to investing in the money market is way, way lower. 00:59:05.730 --> 00:59:10.350 So that's potentially, again, another reason why-- 00:59:10.350 --> 00:59:12.660 in fact, why defaults aren't increasing 00:59:12.660 --> 00:59:15.420 the faction of people that are choosing to save overall, 00:59:15.420 --> 00:59:17.710 or to participate on the savings overall. 00:59:17.710 --> 00:59:22.330 The long-run savings might not necessarily be high. 00:59:22.330 --> 00:59:23.920 Now, let me summarize this. 00:59:23.920 --> 00:59:26.290 I think I said, already, most of this. 00:59:26.290 --> 00:59:29.858 So 40% to 50% of individuals are passive savers, 00:59:29.858 --> 00:59:31.150 as you might want to call them. 00:59:31.150 --> 00:59:33.170 They follow the default plan. 00:59:33.170 --> 00:59:35.680 They essentially-- both in terms of the participation, 00:59:35.680 --> 00:59:37.872 but also on the contribution rate and the asset 00:59:37.872 --> 00:59:39.580 allocation-- they essentially do whatever 00:59:39.580 --> 00:59:43.596 the company chooses for them. 00:59:43.596 --> 00:59:46.880 The suggestive choice is not very attractive 00:59:46.880 --> 00:59:49.580 unless it's the default. Notice-- remember, 00:59:49.580 --> 00:59:50.510 the window cohort. 00:59:50.510 --> 00:59:51.927 The window cohort were essentially 00:59:51.927 --> 00:59:55.660 the cohort that now could just do whatever they wanted to do. 00:59:55.660 --> 01:00:00.760 They were told on the 1st of April, I think, '97 or '98, 01:00:00.760 --> 01:00:03.552 now you can invest immediately. 01:00:03.552 --> 01:00:04.760 You can do whatever you want. 01:00:04.760 --> 01:00:07.163 We're not choosing for you, but you are now eligible, 01:00:07.163 --> 01:00:09.580 even for people who have been at the company for something 01:00:09.580 --> 01:00:11.538 like, say, six months, three months, and so on. 01:00:11.538 --> 01:00:14.230 The company just made the participation 01:00:14.230 --> 01:00:15.550 available to anybody. 01:00:15.550 --> 01:00:17.140 Since they had been hired previously, 01:00:17.140 --> 01:00:18.658 they didn't default people in. 01:00:18.658 --> 01:00:20.950 They just made it, like, you can change your choice now 01:00:20.950 --> 01:00:21.920 if you wanted. 01:00:21.920 --> 01:00:23.830 But among those people, the window cohort 01:00:23.830 --> 01:00:25.870 is very much looking like the old cohort. 01:00:25.870 --> 01:00:28.478 They're not sort of following the company [INAUDIBLE].. 01:00:28.478 --> 01:00:30.770 You might say, well, the company has a new default now. 01:00:30.770 --> 01:00:33.073 And the new default, that's a recommendation, 01:00:33.073 --> 01:00:34.990 so I should just follow that default because I 01:00:34.990 --> 01:00:36.290 don't know what to do. 01:00:36.290 --> 01:00:37.840 That's not what people seem to do. 01:00:37.840 --> 01:00:39.520 So it's not like that-- so there doesn't 01:00:39.520 --> 01:00:44.340 seem to be that the default is a perceived choice that's suggest 01:00:44.340 --> 01:00:46.990 [INAUDIBLE] company, because the window cohort really does not 01:00:46.990 --> 01:00:50.530 follow this default or the suggested default. 01:00:50.530 --> 01:00:54.023 The window cohort really looks like the old cohort. 01:00:54.023 --> 01:00:55.440 Now, I only showed you the results 01:00:55.440 --> 01:00:57.080 for one company for Madrian and Shea. 01:00:57.080 --> 01:01:00.030 But it's a very robust result that, if you look at the paper 01:01:00.030 --> 01:01:01.140 by Choi et al. 01:01:01.140 --> 01:01:04.380 that looks at this in more detail, that finds this 01:01:04.380 --> 01:01:06.560 over and over again in different companies as well, 01:01:06.560 --> 01:01:10.523 default effects tend to be very strong in those companies. 01:01:10.523 --> 01:01:11.940 Now one question you might ask is, 01:01:11.940 --> 01:01:14.400 what's explaining-- what's the underlying reason why 01:01:14.400 --> 01:01:17.730 these default effects are so strong? 01:01:17.730 --> 01:01:19.230 There are potential candidates which 01:01:19.230 --> 01:01:22.110 are awareness, implicit endorsement by the company, 01:01:22.110 --> 01:01:26.310 inattention/memory, or potentially present bias. 01:01:26.310 --> 01:01:29.370 And what researchers found, it's sort of not 01:01:29.370 --> 01:01:30.630 necessarily conclusive. 01:01:30.630 --> 01:01:33.090 But I think the suggestive evidence is very much that-- 01:01:33.090 --> 01:01:34.920 and particularly from Blumenstock et al., 01:01:34.920 --> 01:01:37.470 that we think that present bias might 01:01:37.470 --> 01:01:41.430 be a quite important reason, in addition 01:01:41.430 --> 01:01:43.710 to the cognitive costs of thinking 01:01:43.710 --> 01:01:45.760 through different savings scenarios. 01:01:45.760 --> 01:01:47.820 So people essentially tend to push this off 01:01:47.820 --> 01:01:50.250 and say, oh, I'm going to change it in the future. 01:01:50.250 --> 01:01:51.970 At some point, I'll get to it. 01:01:51.970 --> 01:01:54.000 I'll get to it when it's important. 01:01:54.000 --> 01:01:56.520 Notice that it requires some naiveté, 01:01:56.520 --> 01:01:59.460 because as we discussed, if you were sophisticated, 01:01:59.460 --> 01:02:02.400 you might of push it off maybe a period or two. 01:02:02.400 --> 01:02:05.070 But you would never push it off by 10 years, or five years, 01:02:05.070 --> 01:02:08.490 because you know you're going to lose a lot of money. 01:02:08.490 --> 01:02:11.130 But if you have some present bias plus some naiveté, 01:02:11.130 --> 01:02:14.940 you might say, well, I'm going to do it in the future and not 01:02:14.940 --> 01:02:16.380 right now. 01:02:16.380 --> 01:02:21.240 And that seems to fit the data the best, in part 01:02:21.240 --> 01:02:24.360 because papers such as the one by Blumenstock et al. 01:02:24.360 --> 01:02:26.192 have ruled out some other explanation, 01:02:26.192 --> 01:02:28.025 for example, the inattention/memory stories. 01:02:28.025 --> 01:02:29.280 They set reminders. 01:02:29.280 --> 01:02:31.020 That didn't seem to have an effect. 01:02:31.020 --> 01:02:34.488 They also could rule out the implicit endorsement, 01:02:34.488 --> 01:02:36.405 because they essentially explicitly randomized 01:02:36.405 --> 01:02:39.660 the people who were defaulted in versus defaulted out. 01:02:39.660 --> 01:02:41.070 That also had effects. 01:02:41.070 --> 01:02:42.630 So it doesn't seem to be that. 01:02:42.630 --> 01:02:44.940 They also made people very clearly 01:02:44.940 --> 01:02:48.540 aware of the different retirement savings options. 01:02:48.540 --> 01:02:51.710 And again, that didn't seem to make a big effect. 01:02:51.710 --> 01:02:54.300 So while we don't have conclusive evidence that 01:02:54.300 --> 01:02:58.020 present bias is sort of causing these default defects, 01:02:58.020 --> 01:03:00.057 in the retirement savings choice scheme, 01:03:00.057 --> 01:03:02.640 perhaps if I had to guess, or if I had to say which I think is 01:03:02.640 --> 01:03:05.020 the most likely explanation, we think that present bias 01:03:05.020 --> 01:03:11.720 and naiveté seem to be the best explanations that we have 01:03:11.720 --> 01:03:14.240 so far. 01:03:14.240 --> 01:03:18.140 So now, one question you might sort of say is, well, 01:03:18.140 --> 01:03:20.565 is automatic enrollment optimal? 01:03:20.565 --> 01:03:22.190 I showed you, essentially, that once we 01:03:22.190 --> 01:03:25.910 do automatic enrollment, people are more likely to participate. 01:03:25.910 --> 01:03:29.650 However, while they're more likely to participate, 01:03:29.650 --> 01:03:34.780 also these defaults seem to make some people save less, right? 01:03:34.780 --> 01:03:36.280 We saw some people going essentially 01:03:36.280 --> 01:03:38.370 from 6% participation-- 01:03:38.370 --> 01:03:41.150 contribution rate to 3% contribution rate. 01:03:41.150 --> 01:03:45.200 They also have a much more conservative asset allocation. 01:03:45.200 --> 01:03:46.870 So in the long run, it's not obvious, 01:03:46.870 --> 01:03:49.930 in the case of this company, whether people are actually 01:03:49.930 --> 01:03:52.330 saving more. 01:03:52.330 --> 01:03:55.220 Now, so how would we answer this question? 01:03:55.220 --> 01:03:57.740 We're going to get back to this when we talk about policy. 01:03:57.740 --> 01:04:00.520 But how should we set the default? 01:04:00.520 --> 01:04:01.990 What should we do? 01:04:01.990 --> 01:04:03.850 What are the considerations that we have? 01:04:03.850 --> 01:04:06.175 And how can we decide what's good for people? 01:04:06.175 --> 01:04:10.353 You can essentially force people to make a choice. 01:04:10.353 --> 01:04:12.520 There were some companies where, essentially, people 01:04:12.520 --> 01:04:15.220 were very, very strongly encouraged to-- essentially, 01:04:15.220 --> 01:04:15.980 here's a form. 01:04:15.980 --> 01:04:16.480 Fill it out. 01:04:16.480 --> 01:04:17.590 Tell me what you want. 01:04:17.590 --> 01:04:19.510 And was sort of part of the hiring package, 01:04:19.510 --> 01:04:21.970 and essentially was sort of arguing-- 01:04:21.970 --> 01:04:23.470 I don't think that's actually legal. 01:04:23.470 --> 01:04:26.550 But it was essentially sort of implying that one [INAUDIBLE] 01:04:26.550 --> 01:04:28.580 to doing this form before you can start working, 01:04:28.580 --> 01:04:31.033 and otherwise, you can't start working at this company. 01:04:31.033 --> 01:04:32.950 And now, we can look at, like, what are people 01:04:32.950 --> 01:04:35.620 actually choosing when everybody chooses actively? 01:04:35.620 --> 01:04:38.360 And that's presumably when people are paying attention, 01:04:38.360 --> 01:04:41.080 or maybe people do the best they can for their choices, 01:04:41.080 --> 01:04:43.150 and they're not automatically enrolled 01:04:43.150 --> 01:04:46.250 either in 0%, or 3%, or other percentages. 01:04:46.250 --> 01:04:48.590 And so this paper for by Carroll et al. 01:04:48.590 --> 01:04:50.330 looks attractive choices. 01:04:50.330 --> 01:04:52.190 And when people choose actively, they 01:04:52.190 --> 01:04:55.310 look a lot like the new cohort in Madrian and Shea. 01:04:55.310 --> 01:04:56.810 So essentially, that's sort of seems 01:04:56.810 --> 01:05:00.920 to say that the default did in fact-- the default 01:05:00.920 --> 01:05:05.210 into automatic enrollment seemed to have alleviated 01:05:05.210 --> 01:05:07.460 undersavings. 01:05:07.460 --> 01:05:08.960 Because when people choose actively, 01:05:08.960 --> 01:05:11.240 they choose a lot-- look a lot like the new cohort 01:05:11.240 --> 01:05:12.530 compared to the old cohort. 01:05:12.530 --> 01:05:14.480 It seems to be that people, when they're 01:05:14.480 --> 01:05:17.290 defaulted in the no savings option, they kind of maybe 01:05:17.290 --> 01:05:20.670 think, oh, I'll do it in the future, and so on and so forth. 01:05:20.670 --> 01:05:23.138 But then they never sort of get to it. 01:05:23.138 --> 01:05:25.430 Now, when you actually ask them actually what you want, 01:05:25.430 --> 01:05:29.820 it seems like people are mostly wanting to enroll. 01:05:29.820 --> 01:05:31.650 Now, one thing that is quite interesting 01:05:31.650 --> 01:05:35.430 here is that it seems like the default effects seem to mostly 01:05:35.430 --> 01:05:36.870 disappear after three years. 01:05:36.870 --> 01:05:41.450 That's true for quite a few studies. 01:05:41.450 --> 01:05:43.008 However, even if that's the case, 01:05:43.008 --> 01:05:44.800 well, there's no catch-up in levels, right? 01:05:44.800 --> 01:05:49.800 So if you start contributing after three years, while you 01:05:49.800 --> 01:05:51.390 miss out on three years of savings, 01:05:51.390 --> 01:05:53.190 you're never going to catch up overall. 01:05:53.190 --> 01:05:57.330 Moreover, people tend to change their employers 01:05:57.330 --> 01:05:59.730 very frequently, particularly in the US. 01:05:59.730 --> 01:06:01.590 So if it takes you only-- 01:06:01.590 --> 01:06:04.620 if it takes you three years to sign up for retirement savings 01:06:04.620 --> 01:06:06.870 every time you switch your employer, 01:06:06.870 --> 01:06:09.940 you're going to not save very much. 01:06:09.940 --> 01:06:12.210 Chetty et al had an example where they find, in fact, 01:06:12.210 --> 01:06:16.080 very clear effects on long-run savings of these types 01:06:16.080 --> 01:06:18.400 of default [INAUDIBLE]. 01:06:18.400 --> 01:06:21.962 Now, let me tell you a little bit now about-- 01:06:21.962 --> 01:06:23.920 I'm going to sort of move the frames and nudges 01:06:23.920 --> 01:06:26.462 until next time, which I think should be fine because there's 01:06:26.462 --> 01:06:28.150 not that much left anyway. 01:06:28.150 --> 01:06:30.640 But let me tell you a little bit about a cautionary tale 01:06:30.640 --> 01:06:32.650 about defaults. 01:06:32.650 --> 01:06:35.250 This is a paper by-- a very short paper by Cronqvist 01:06:35.250 --> 01:06:38.080 and Thaler that looks at the privatization 01:06:38.080 --> 01:06:40.150 of social security in Sweden. 01:06:40.150 --> 01:06:42.170 So they had 456 funds. 01:06:42.170 --> 01:06:45.580 And there was one default fund chosen by the government. 01:06:45.580 --> 01:06:48.220 And in 2000, this default fund was 01:06:48.220 --> 01:06:50.410 discouraged with a massive marketing campaign. 01:06:50.410 --> 01:06:53.020 Essentially people said, like, don't choose the default fund. 01:06:53.020 --> 01:06:54.490 Just pick for yourself. 01:06:54.490 --> 01:06:56.810 Make the choice that's the best for you. 01:06:56.810 --> 01:06:59.230 And then in 2003, this marketing campaign ended. 01:06:59.230 --> 01:07:01.330 And now essentially, the majority, again, 01:07:01.330 --> 01:07:08.130 sort of chose the default account or fund. 01:07:08.130 --> 01:07:12.600 Now, as it happens, the portfolios actively chosen 01:07:12.600 --> 01:07:16.750 in 2000 did a lot worse than the default. 01:07:16.750 --> 01:07:21.347 So people, essentially, were choosing on their own. 01:07:21.347 --> 01:07:23.430 And in part, I think because they're just unlucky, 01:07:23.430 --> 01:07:26.790 because it happened to be at the wrong time and the wrong place, 01:07:26.790 --> 01:07:28.770 chose sort of very risky assets. 01:07:28.770 --> 01:07:31.390 And the default tended to be somewhat more conservative. 01:07:31.390 --> 01:07:34.630 So people lost a lot of money. 01:07:34.630 --> 01:07:36.270 So now, that's the more general issue 01:07:36.270 --> 01:07:39.600 is that active choice is less attractive if consumers are 01:07:39.600 --> 01:07:41.370 less financially sophisticated. 01:07:41.370 --> 01:07:43.170 Again, in the Cronqvist and Thaler case, 01:07:43.170 --> 01:07:44.378 maybe they were just unlucky. 01:07:44.378 --> 01:07:46.710 But in general, if you want people to choose actively 01:07:46.710 --> 01:07:48.335 and they don't know what they're doing, 01:07:48.335 --> 01:07:51.235 well, then they're going to be potentially worse. 01:07:51.235 --> 01:07:52.860 There is similar evidence, for example, 01:07:52.860 --> 01:07:55.027 for health care insurance choices, where people just 01:07:55.027 --> 01:07:57.730 don't know what health insurance choice is best for them. 01:07:57.730 --> 01:08:00.240 So you can give them more options, 01:08:00.240 --> 01:08:04.183 they might be potentially doing worse, because they just 01:08:04.183 --> 01:08:05.100 don't know what to do. 01:08:05.100 --> 01:08:06.933 And then they choose options that are worse, 01:08:06.933 --> 01:08:09.610 and they're more likely, for example, to be exploited. 01:08:09.610 --> 01:08:12.840 And then, having a default choice that is perhaps not 01:08:12.840 --> 01:08:15.450 optimal for everybody, but it's pretty conservative and pretty 01:08:15.450 --> 01:08:19.104 good for most people, might be, in fact, quite valuable. 01:08:19.104 --> 01:08:20.479 And so now, when you think about, 01:08:20.479 --> 01:08:25.720 like, optimal decision regimes, when 01:08:25.720 --> 01:08:27.910 you think of an active choice versus default, 01:08:27.910 --> 01:08:32.270 consumer heterogeneity makes active choice more attractive. 01:08:32.270 --> 01:08:35.770 If you think people want very different things, 01:08:35.770 --> 01:08:38.040 and they know about what's best for them, 01:08:38.040 --> 01:08:39.580 and we don't have that information-- 01:08:39.580 --> 01:08:42.130 we don't know what's good for some people versus others-- 01:08:42.130 --> 01:08:44.290 well, it's best to let people choose on their own. 01:08:44.290 --> 01:08:45.998 Let's let them pick what's good for them, 01:08:45.998 --> 01:08:49.410 and then they'll be happy. 01:08:49.410 --> 01:08:52.335 But active choice only improves the outcome 01:08:52.335 --> 01:08:54.210 if people actually know what's good for them. 01:08:54.210 --> 01:08:55.710 If everybody is confused and doesn't 01:08:55.710 --> 01:08:57.359 know what they're doing, well then, 01:08:57.359 --> 01:09:00.180 letting people choose actively will potentially 01:09:00.180 --> 01:09:03.380 make things worse for quite a few people. 01:09:03.380 --> 01:09:05.880 And so you want to make sure that defaults don't make people 01:09:05.880 --> 01:09:06.450 worse off. 01:09:06.450 --> 01:09:07.658 This is what Jose was saying. 01:09:07.658 --> 01:09:09.600 In particular, people might sort of oversave 01:09:09.600 --> 01:09:11.758 if you default them into high savings. 01:09:11.758 --> 01:09:13.800 And then they have credit card debt or other sort 01:09:13.800 --> 01:09:15.680 of problems arising from that. 01:09:15.680 --> 01:09:17.790 So we want to be quite careful. 01:09:17.790 --> 01:09:21.240 One option one can try and do is try to provide information 01:09:21.240 --> 01:09:23.330 sessions and make sure people know, here's-- 01:09:23.330 --> 01:09:26.609 or trying to sort of provide a curated set of three, four 01:09:26.609 --> 01:09:28.350 options that we think are good options 01:09:28.350 --> 01:09:31.439 for different types of people, provide information for them, 01:09:31.439 --> 01:09:34.560 make sure they understand these options, 01:09:34.560 --> 01:09:38.013 and that then people choose on their own. 01:09:38.013 --> 01:09:40.430 Another popular alternative-- I'm going to talk about this 01:09:40.430 --> 01:09:42.170 a little bit when we talk about policy-- 01:09:42.170 --> 01:09:43.878 which is called the smart plan, or, like, 01:09:43.878 --> 01:09:47.330 auto-escalation plans, which are essentially more like automatic 01:09:47.330 --> 01:09:55.310 raises in the future, where you essentially 01:09:55.310 --> 01:09:57.200 can commit to automatically raising 01:09:57.200 --> 01:10:00.500 your savings in the future. 01:10:00.500 --> 01:10:03.590 You say, essentially, every time I get a pay raise, 1%, 01:10:03.590 --> 01:10:05.240 or some fraction of that pay raise, 01:10:05.240 --> 01:10:07.880 or one percentage point of my earnings of that pay raise, 01:10:07.880 --> 01:10:11.070 will go through my savings. 01:10:11.070 --> 01:10:14.690 So then, you don't have to reduce 01:10:14.690 --> 01:10:18.770 your consumption or your salary right now that you receive, 01:10:18.770 --> 01:10:19.970 but in the future. 01:10:19.970 --> 01:10:20.860 That's good. 01:10:20.860 --> 01:10:23.870 In particular, it addresses present bias and loss aversion. 01:10:23.870 --> 01:10:26.810 Because people are really averse to reducing their paycheck 01:10:26.810 --> 01:10:30.485 right now, and for present bias and loss aversion reasons. 01:10:30.485 --> 01:10:32.180 When I was asking about information 01:10:32.180 --> 01:10:34.760 versus financial education, I mean kind of both of those. 01:10:34.760 --> 01:10:38.150 You can find information about what are these options, what's 01:10:38.150 --> 01:10:41.370 good about this investment option versus another, 01:10:41.370 --> 01:10:43.610 and so providing financial education, 01:10:43.610 --> 01:10:48.470 but in particular, financial education plus active choice. 01:10:48.470 --> 01:10:50.540 Essentially, by active choice, I mean 01:10:50.540 --> 01:10:52.580 pushing people really to choose, and saying, 01:10:52.580 --> 01:10:53.805 look, what do you want? 01:10:53.805 --> 01:10:57.260 Do you want option A, which is no retirement 01:10:57.260 --> 01:11:01.520 savings, or option B, which is like 3%, or 6%, or whatever. 01:11:01.520 --> 01:11:03.650 The current format is more-- 01:11:03.650 --> 01:11:06.110 essentially, is, like, no information, 01:11:06.110 --> 01:11:09.030 and the default is essentially 0 savings. 01:11:09.030 --> 01:11:11.270 And then, you have to actively choose on your own 01:11:11.270 --> 01:11:11.910 as an employer. 01:11:11.910 --> 01:11:14.660 And many employees-- sorry, as an employee. 01:11:14.660 --> 01:11:18.410 Many employees just don't know what to do, and get confused. 01:11:18.410 --> 01:11:20.660 And then they get frazzled, and then procrastinate it, 01:11:20.660 --> 01:11:24.240 and then never do it, perhaps in part because of confusion. 01:11:24.240 --> 01:11:28.130 OK, and then other settings have enormous before the fact. 01:11:28.130 --> 01:11:30.200 This is, for example, true for organ donations. 01:11:30.200 --> 01:11:33.920 I talked about this already in the first or second lecture. 01:11:33.920 --> 01:11:39.080 There's some other settings such as voter registration, 01:11:39.080 --> 01:11:41.100 green energy options, and so on. 01:11:41.100 --> 01:11:44.840 So default effects can be really, really powerful. 01:11:44.840 --> 01:11:47.840 But one wants to be quite careful in using them. 01:11:47.840 --> 01:11:50.870 I'm going to talk about this a little bit 01:11:50.870 --> 01:11:52.900 at the end of this lecture next time. 01:11:52.900 --> 01:11:54.090 Let me stop here. 01:11:54.090 --> 01:12:04.366 Let me just tell you what to read, which is-- one second-- 01:12:04.366 --> 01:12:09.610 which is the paper by Ariely et al., sections one through four. 01:12:09.610 --> 01:12:13.390 You can read more if you want, but section one through four 01:12:13.390 --> 01:12:14.740 already gets you pretty far. 01:12:14.740 --> 01:12:17.770 This is really a fun paper that questions 01:12:17.770 --> 01:12:21.610 a lot of assumptions of neoclassical economics, 01:12:21.610 --> 01:12:24.350 makes you wonder where preferences come from 01:12:24.350 --> 01:12:26.750 and what they really mean. 01:12:26.750 --> 01:12:28.390 So it's a fun read. 01:12:28.390 --> 01:12:31.540 I'll talk about this in the remaining part of this 01:12:31.540 --> 01:12:34.330 lecture-- which is a bit on frames and nudges-- 01:12:34.330 --> 01:12:37.810 more generally next time on Wednesday. 01:12:37.810 --> 01:12:39.860 Let me know if you have any questions. 01:12:39.860 --> 01:12:41.730 Thank you so much.