Nudge: The Final Edition

by Richard H. Thaler

Unsurprisingly, about two-thirds of those enrolling chose a savings rate of exactly 6 percent. In contrast, when employees were enrolled automatically, the most common savings rate was the default: 3 percent. In other words, some of those who were automatically enrolled would have chosen a higher savings rate if they had been left to their own devices. Making matters worse, the default investment choice of the low-risk money market account meant that low contributions would earn tiny returns. Let’s underline what happened: more people were participating, which is good, but their savings rates were far too low and their investments were far too conservative. Automatically enrolling people in a bad or mediocre option has serious pitfalls. But both of these problems can be addressed by better choice architecture.