Cost-effective way to entice people to save more for retirement
Assessing a range of incentives to encourage people to contribute more to retirement savings plans, the researchers find a nudging approach sees strong results for every US dollar spent.
Benartzi et al., 2017
The researchers focused on four behavioral outcomes identified as priorities by the US and UK governments: increasing retirement savings, college enrollment, energy conservation, and flu vaccinations. They used existing research into specific interventions—some undertaken by lawmakers, others by companies in the private sector—to assess the respective costs and results.
In one case, the researchers looked at a nudge by the tax-preparation firm H&R Block, which offered clients assistance in filing college financial-aid paperwork, and compared that approach with subsidies and tax incentives offered at the state and federal levels. The nudge produced 1.5 additional college enrollees per $1,000 spent—making it 40 times more effective than the next most effective intervention the researchers analyzed.
Likewise, nudging turned out to be the most cost-effective way of encouraging energy conservation. One program to nudge consumers into lower electricity use, sending letters comparing a household’s energy consumption to that of its neighbors, saved 27 kilowatt-hours per dollar spent. In contrast, a rebate offered by California utility companies produced savings of only 3.4 kWh per dollar, and other demand-management policies that relied on a combination of consumer education and monetary incentives averaged 14 kWh per dollar.
The findings suggest that nudges offered the most impact per dollar for each of the other two policy goals as well. “Our selective but systematic calculations indicate that the impact of nudges is often greater, on a cost-adjusted basis, than that of traditional tools,” write the researchers. “In light of growing evidence of [nudging’s] relative effectiveness, we believe that policy makers should nudge more.”
Shlomo Benartzi, John Beshears, Katherine L. Milkman, Cass R. Sunstein, Richard H. Thaler, Maya Shankar, Will Tucker-Ray, William J. Congdon, and Steven Galing, “Should Governments Invest More in Nudging?” Psychological Science, May 2017.
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