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Passive Decisions and Potent Defaults

Passive Decisions and Potent Defaults

Chapter:
(p.59) 2 Passive Decisions and Potent Defaults
Source:
Analyses in the Economics of Aging
Author(s):
James J. Choi, David Laibson, Brigitte C. Madrian, Andrew Metrick
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226903217.003.0003

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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