Saurabh Bhargava, Carnegie Mellon University
ABSTRACT: Economists have identified several psychological frictions to explain why many 401(k)-eligible employees undersave for retirement despite generous matching incentives. We causally investigate four of these frictions through a field experiment that randomized 1,137 low-saving employees at a large US firm to information- and incentive-based treatments embedded within a survey assessing each friction’s baseline prevalence. We describe four findings: (1) We corroborate prior work showing pervasive low retirement literacy that correlates with saving, but reject any meaningful increase in saving from personalized recommendations that demonstrably improve literacy. (2) In an (unplanned) analysis of plan confusion, we estimate that 20 to 37 percent of 401(k) non-participants mistakenly believed themselves to be enrolled— these employees enrolled at high rates when prompted to review their actual status. (3) We find no evidence that enrollment complexity impedes saving—few employees perceived enrollment as prohibitively timeconsuming and simplifying enrollment further did not increase saving. (4) Finally, we directly implicate present focus as a cause of undersaving by showing that a significant share of employees increased saving in response to a small immediate reward ($10 gift card) but not to clarification of the dramatically larger, but delayed, plan match. Calibrations suggest that models with beta-delta preferences cannot account for the delay in actual—and anticipated—enrollment with plausible assumptions of present bias and enrollment hassle costs. We propose an alternative hedonic model of present focus and delayed optimism that does explain our findings—and possibly other retirement savings puzzles—and offers a psychological rationale for reforms that encourage long-run savings by linking existing 401(k) accounts to a more liquid account designed to relieve near-term financial anxiety.