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Passive Decisions and Potent Defaults

Passive Decisions and Potent Defaults

(p.59) 2 Passive Decisions and Potent Defaults
Analyses in the Economics of Aging
James J. Choi, David Laibson, Brigitte C. Madrian, Andrew Metrick
University of Chicago Press

This chapter proposes a theory of optimal defaults in related to retirement savings. It suggests that it is sometimes optimal to set extreme defaults that are far away from the mean optimal savings rate. This chapter discusses the application of the proposed model to calculate optimal defaults for employees at four different companies. The findings reveal that optimal defaults are likely to be at one of three savings rates: 5 to 6 percent of the employer match threshold or about 15 percent of the maximal savings rate.

Keywords:   optimal defaults, retirement savings, optimal savings rate, employer match threshold, maximal savings rate

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