First, thank you so much for your wonderful replies to my big announcement that I’ll be publishing my first book in May. It was truly such a joy to find my inbox overflowing with your kind words and I appreciated all your social media posts encouraging others to pre-order How to Change.
Today, I’m back with a regular newsletter sharing an interview about the most valuable nudge around — one that’s boosted millions of Americans’ retirement savings at virtually no cost.
But first, I want to share some of the interviews I’ve done about tackling new goals after New Year’s. This year, the fresh start that came with January 1st might have felt a little different than usual. We’re all eager to put 2020 behind us, and my research with Hengchen Dai and Jason Riis has shown that new beginnings can help us do just that. Below are some New Year’s themed recommended listens and reads…
Recommended Listens and Reads
A Clean Slate: On one of my all-time favorite episodes of Choiceology, I interviewed Harvard economist John Beshears and economics Nobel Prize winner Richard Thaler of the University of Chicago about a behavioral bias that helps explain why we make New Year’s resolutions.
The Science of Sticking to Your New Year’s Resolutions: This article from CNN summarizes the tools behavioral science has proven can help you stick to your resolutions, at New Year’s or any other time.
Choose Bite-Size Resolutions for 2021: This New York Times article suggests downsizing your 2021 resolutions given the current state of affairs. And it uses my research on fresh starts to point out other moments throughout the year that are good for kickstarting change, in case your New Year’s resolutions don’t pan out.
Finally, veering away from resolutions, if you’re looking for good new books to read (before getting your copy of How to Change in May), I’m particularly excited about two new releases from brilliant psychologists: Chatter: The Voice in Our Head, Why It Matters, and How to Harness It from the amazing Ethan Kross as well as Think Again: The Power of Knowing What You Don’t from my exceptional colleague Adam Grant.
Q&A: The Power of Defaults
Today I’m sharing an interview I conducted for Choiceology with emeritus UCLA Anderson School of Management Professor Shlomo Benartzi. Shlomo has devoted much of his career to exploring how behavioral science can be used to help people save more for retirement. In this Q&A, we discuss the power of defaults, which are arguably the most potent tool for changing decisions in any behavioral scientist’s arsenal.
Me: Shlomo, could you first explain what defaults are?
Shlomo: They're what happens if you don't choose. In saving for retirement, the default could be that you have to take an action to save. Or the default could be that everyone saves automatically and they have to take an action to opt out. So I think of a default as what happens if I do nothing.
Me: Could you describe some of the early research showing defaults matter?
Shlomo: The work Brigitte Madrian did with Dennis Shea looked at a company where employees were struggling to save for retirement. This was before the digital age and only about half the employees would bother to go to HR to fill out the paperwork and join the retirement plan. And half would do nothing for a variety of reasons — they were busy with the kids or they didn't think they had the money to save. The company changed the default so that everyone automatically saved for retirement, but they could opt out, and it turns out that, after that, only 10% of the people opted out.
Of course, you're going to have all sorts of concerns about tricking people into saving. What if those extra 40% of people who are now saving are defaulting on their mortgages because they really don't have the money? But surveys show that generally people are quite happy. So it doesn't look like we're tricking people.
Me: Why do you think defaults are so important? What makes them so sticky?
Shlomo: People are cognitively lazy, and the easiest choice is not to make a choice. So that's one of the reason defaults are powerful, but I think they might be becoming more powerful because there's so much choice overload and information overload. We’re all bombarded with offers on our phones with messages, with emails, with retargeting campaigns by Facebook and Google and others. And I think we have no mental bandwidth left to think about all these choices. So how you set the default today would be more powerful than it was 20 or 40 years ago.
Me: What about the implicit recommendation that comes with a default setting on your phone or from the default retirement option HR selects? Do you think that's an important part of what makes defaults work?
Shlomo: Yes. I think that especially when people don't have a strong opinion on what they or should not do, the way the default is set is a signal.
Me: Will you tell me a little bit about your work with Richard Thaler on the Save More Tomorrow program and how you two used defaults there?
Shlomo: Somewhere around '96 we wanted to help people save for retirement and we had the more ambitious plan to help people with self-control issues more broadly. We want to exercise, but we sit on the couch watching Netflix. We want to save, but we spend.
So we came up with the idea that you'll save more, but not today. It's easier to think about doing the right things in the future.
Then of course there's the question of when would be a good time to start saving? And we figured maybe we would do it when people get a pay raise so they never have to cut their spending. They never actually have to feel the loss of not going to dine out.
The big difference was that we could make it the default that once you sign up, every time you get a pay raise, you're going to save more. Fast forward: We found a company to do it in '98. Three years later we had the data that people almost quadrupled their saving rates.
Me: If someone is worried about being tricked by, I'll call them “bad defaults,” what advice would you have to avoid that kind of a fate?
Shlomo: First you have to realize there's a default. Say your cell phone company or security company is adding all sorts of features to your monthly bill. It takes a lot of effort to get rid of them.
My first advice would be to pick your battles, because we can't avoid defaults and life is too short. You might want to consider the biggest decisions where defaults could happen. I'll give you one example: employer sponsored healthcare programs. I know many people don't have that luxury anymore, but there's still a large segment of the population where the employer is offering health insurance. And generally, every year, you have to win the war. If you do nothing, you get the same plan you had last year.
Yet your health might be dramatically different, or the health of your spouse or kids. Or the programs might be dramatically different this year. Those would be the places that people should probably engage and try to get informed and maybe undo the default.
So maybe you choose three domains you decide are important and that’s where you actually think about the default.
To learn more about how and why defaults matter, listen to the episode of Choiceology about defaults. To learn more about using behavioral science to boost savings, check out Shlomo Benartzi's book Save More Tomorrow.
This interview has been edited for clarity and length.
That’s all for this month’s newsletter. See you in February!
Katy Milkman, PhD
Professor at Wharton, host of Choiceology, an original podcast from Charles Schwab, and author of How to Change: The Science of Getting from Where You Are to Where You Want to Be