Archive for September, 2008

Pick your favorite alternative for the term “choice architecture”

September 26, 2008

Philip Frankenfeld, winner of New York Times columnist John Tierney’s contest to name the carbon footprint lapel pin (the iPed), has come up with 26 alternatives for the term “choice architecture.” Pick a favorite of his, or suggest your own. We’ll hold off on announcing our favorite for the moment.

1. Choice boxed; foxed.
2. Choice grooved: moved.
3. Mind designed.
4. Act tracked.
5. To the vectors go the spoils.
6. Thought taught.
7. Mind inclined.
8. Route’s rut.
9. The star quality, dear Brutus, lies not in ourselves but in default.
10. Default, dear Brutus is set not by ourselves but by the czars.
11. Rut, set. Strut, Fret.
12. Gourd’s grid.
13. Choice framed, gamed, tamed, aimed.
14. Hid bid grid.
15. Cognition canalized.
16. Choice schemed; streamed.
17. Fate funneled.
18. Choice channeled.
19. Pinball wizardry.
20. ConTEMPLATEtion
21. Slot-taught thought.
22. New and engrooved.
23. The grooves of academe.
24. Decide guide.
25. Menupulation.
26. Reined. Laned.

Trends in automatic 401(k) enrollment

September 26, 2008

Large companies are doing better than small ones. And more than 10 percent of the total rise has come since the passage of the Pension Protection Act. See the below side from recent presentation by CBO director Peter Orszag.

Loud music can be a nudge

September 25, 2008

From Psyblog:

Sure enough when the music went up the beers went down, faster. On average bar-goers took 14.5 minutes to finish a 250ml (8 oz) glass of draught beer when the music was at its normal level. But this came down to just 11.5 minutes when the music was turned up. As a result, on average, during their time in the bar each participant ordered one more drink in the loud music condition than in the normal music condition.

That’s from an experimental study of bars in France. (The music levels were randomly manipulated.) When the music volume goes up, men drink more than women, and rural topers quaff more than urban ones. (Maybe toper is too harsh.) Why do people drink more when the music is loud? Because they can’t talk to each other as easily.

Cass Sunstein on his prolificacy and Judge Richard Posner’s

September 25, 2008

Are you and Richard Posner locked in a publications arms race?

Judge Posner and I are good friends. A few years back, Ronald Dworkin wrote an essay attacking the two of us simultaneously and we decide at lunch on Friday that we would co-author a response. I wanted to get the jump on the response, so I worked very hard over the weekend and produced a seventeen-page, single-spaced paper with no footnotes, which I faxed to Judge Posner on Monday morning. That was fast. I got back to my office and on my chair was a fax from Judge Posner which was thirty pages, single-spaced, with complete footnotes. So, publication races he wins.

From Harvard Law Record Q&A

Why policymakers need to be humble

September 24, 2008

File this away in the unintended consequences vault: Drunk driving deaths in the U.S. spike following smoking ban laws.

Although an increased accident risk might seem surprising at first, two strands of literature on consumer behavior suggest potential explanations—smokers driving longer distances to a bordering jurisdiction that allows smoking in bars and smokers driving longer distances within their jurisdiction to bars that still allow smoking, perhaps through non-compliance or outdoor seating. We find evidence consistent with both explanations. The increased miles driven by drivers wishing to smoke and drink offsets any reduction in driving from smokers choosing to stay home following a ban, resulting in increased alcohol-related accidents.

The increases are between 10 and 19 percent. The paper, by Scott Adams and Chad Cotti, is here.

A proposal for a default rule in mortgage sales

September 24, 2008

“Stop trying to turn everyone into a financial planner,” says Lauren Willis of Loyola Law School in Money Magazine. “Instead, try to get everyone to understand that the people selling you financial products often don’t have your best interests at heart.”

Q: What type of regulation do you think would work?

A: Sellers could be required to offer you a default product that is safe. Whenever you applied for a mortgage, for example, you would have to be offered a 30-year fixed amortizing loan.

Hat tip: Freakonomics.

New estimates on the benefits of automatic enrollment for 401(k) plans

September 23, 2008

The Pension Protection Act of 2006 gave companies some carrots for adopting auto-enrollment 401(k) plans, a favorite nudge of ours. A paper out earlier this summer by the Employee Benefit Research Institute draws some preliminary conclusions about its effect – chiefly that there is a “very significant positive impact in generating additional retirement savings for many workers, especially for low-income workers.” (Go here for the full summary)

For example, under one set of assumptions used in the Issue Brief, the median 401(k) accumulations for the lowest-income quartile of workers currently age 25–29 (assuming all 401(k) plans were voluntary enrollment) would only be 0.1 times final earnings at age 65 (this is largely due to the fact that 41 percent of workers—as opposed to participants—were assumed to have zero balances at age 65). However, if all 401(k) plans are assumed to be using the safe harbor automatic enrollment provisions under PPA, the median 401(k) accumulations for the lowest-income quartile jumps to 2.5 times final earnings under the most conservative assumptions and 4.5 times final earnings under the set of assumptions most beneficial to participants.

Even among higher paid workers the increases are considerable. The multiple jumps from 1.8 times final earnings under a voluntary enrollment scenario to between 6.5 to 10.4 times final earnings under an automatic enrollment scenario, depending on one’s assumptions about automatic escalation of contributions.

While individual company adoption of auto-enrollment is good for that company’s workers, a bigger lesson of the paper is the need for universal adoption. In an age when workers switch jobs more frequently than ever, the risks to saving among many, especially those predisposed not to enroll, are large. Based on projections by the authors (with some assumptions for average savings rates and salaries), individuals who are automatically enrolled in a 401k at their work and remain there for life end up with median replacement rates at retirement ranging from 51–69 percent. The replacement rate is the percentage of a worker’s final salary that is replaced in retirement by a nominal annuity purchased with 401(k) assets. If a worker switches jobs, however, and only has an average chance of being automatically enrolled, the replacement rate range drops to 21-26 percent. That’s serious money.

Hat tip: Mostly Economics

The workday at 1 mph

September 22, 2008

Two questions:

1) Would you give up your sitting desk for a treadmill desk? The device might work best at companies that use the hotelling model in which people do not work from assigned seats.

2) What office tasks can you do better while pacing? Conference calls? Sure. Email and spreadsheets? The head of the Mayo clinic says yes, but really?

Hat tip: Sendhil Mullainathan

A commitment strategy for when the stock market is in free fall

September 22, 2008

Don’t check your 401(k) portfolio on a week like the last one, especially if you’re young. Take a tip from this guy.

Scott Jaffa, a 25-year-old systems administrator in Silver Spring, Md., called yesterday’s plunge “as much a test of my psychology as anything else.” Because he does not need the money “for another 30 to 40 years,” he asked rhetorically, “why should I worry myself about its performance over a period of days or weeks or even months?”

Mr. Jaffa is already developing what the ancient Stoics and the great Danish philosopher Søren Kierkegaard called ataraxia, or imperturbability. But he knows that ataraxia does not come naturally; it takes work. A year and a half ago, Mr. Jaffa destroyed the online access code for his 401(k) so he could no longer have instant access to his retirement accounts. His goal was to make it “significantly harder” and to require “human interaction” before he could trade on his own emotions. That enabled him to watch Monday’s decline without acting on it.

From the Wall Street Journal.