Behavioral Economics - Nudge

Seattle Windshield Pitting Epidemic

- pits in windshield reached epidemic level hired scientists to investigate. result of normal driving conditions when small objects strike windshield. They has been there all along, but no one had notice them.

Rules of Thumb in Stocks and Bonds

1. Buy low, sell high. 2. Diversification heuristic: don't put all your eggs in one basket. 3. 1/n heuristic: when faced with n options, divide assets evenly across the options. Example: habit shown in trick-or-treaters. This means that if more stock funds are offered (3 stock funds, 1 bond), people will invest more money in stocks.

Mental Accounting

Adopt internal control systems that are used to evaluate, regulate, and process budgets. Violates fungibility.

Healthcare and the right to sue

All healthcare customers in America have a right to sue their doctors for negligence, and this cost gets passed along and built into their medical bills. Many patients and healthcare providers would gladly enter into an arrangement according to which doctors, hospitals, or insurance carriers reduce the price of healthcare in exchange for a waiver of the right to sue for medical malpractice.

How to nudge people to make better investment decisions

Defaults: Offer options of lifestyle funds. Offer Target Maturity Funds —associated with the workers retirement date. Structuring Complex Choices: an option is to allow participants to choose how much they want to choose. Expect Error: automatic enrollment combined with the Save More Tomorrow, also require implementing an automatic re-balancing of asset allocation. Mappings and Feedback: show people pictures —> translate retirement options into experience. Incentives: include them haha.

Results of Swedish Privatization Plan

Did Active Choosers Make good choices? Allocation to stocks was pretty high. They elected to invest nearly half of their money in the stocks of Swedish companies (reflecting home bias). A very small percentage of the funds were indexed, this means the fees choosers had to pay were higher. The default fund outperformed what people chose. Advertising: If funds are free to enter this market, then presumably they should be free to court customers. The advertisements were largely uninformative and strongly affected investors decisions. The government did not choose the best choice architecture. The more choices you give people, the more help you need to provide.

Conformity experiments

Conformity experiments show that people are influenced by widely believed opinions and peer pressure. Example: Sherif's Light in a Dark Room Test — individual estimates converge into consensus. Also showed that consistent and unwavering people can move groups and practices in their preferred direction. Group's opinions became firmly internalized.

Lake Shore Drive Nudge in Chicago

Curves are dangerous City placed a reminder and then a series of stripes that are at first appear evenly spaced but get closer together eventually. This gives the sensation that driving speed is increasing —> People slow down.

Status Quo Bias

People have a more general tendency to stick to their current situation. Caused by lack of attention. This combined with loss aversion implies that if an option is designated as the default, it will attract a large market share.

Prenuptials

People have an accurate sense that ~50% of marriages end in divorce in general, but because of the self-serving bias nearly all newlyweds believe that they are almost certain not to get divorced. Thus couples are reluctant to get prenuptial agreements, and it is essential to design good default rules to govern contractual arrangements between domestic partners. This helps give people a clearer sense of their rights and obligations and protects those most vulnerable, namely women and children. For example, such default rules might provide that special help will be provided to those who have been the primary caretakers of the children. It is crucial that these rules be extraordinarily clear, because people have a tendency to think that objectively "fair" outcomes skew in their favor, especially in difficult or important negotiations like marital disputes. Unrealistic expectations lead people to hard bargaining, making disputes longer, more intense, and more expensive. These costs can be avoided by anchoring peoples' expectations of the possible outcomes through a narrow range of possibilities within which a judge has discretion to consider other factors, akin to criminal sentencing guidelines.

Mindless Choosing

People put themselves into automatic pilot mode. Example: Stale Popcorn, Campbell's Tomato Soup.

Possibly Nudges for Part D

Possible Nudges: Use intelligent assignment (based on patient's income and medical history) RECAP System: Annually seniors would submit a list of all the drugs used over the previous year and fees incurred. Information would be available on line and comparison pricing would be made easy. The Information generated from this could also be used to improve intelligent assignment.

Why do we need nudge? Frequency

The higher the stakes a decision is, generally the less time we have to practice it. Rare, difficult choices are good candidates for nudges.

Role of government in Savings nudging

The primary role government had to play was to get out of the way by reducing barriers to adopt these programs in the private sector. Pension Protection Act: offers incentive for employers to match employees contributions, enroll them in the plan and automatically increase their contribution rates. For Social Security decision as to when to start collecting money and when to stop, important questions to ask: are you in good health? Do you plan to keep working? If so, how much will you make? At what age did your parents die? Are you married? Is she working? etc. This is an ideal domain for nudging, because people have to make only one decision per lifetime.

Part D Policy's Six Key Features

The working principle of Part D was to provide seniors with as many federally approved choices as possible. The Policy had six key features: 1. Voluntary plan, except those covered by Medicaid 2. Open enrollment periods at the ned of every year, face penalty if they delay. 3. Can enroll in a stand-alone prescription drug plan or joint Medicare -Prescription drug plan 4. Plans differ across states 5. sponsored a public awareness campaign 6. Coverage starts with first prescription the senior needs and then stops after patient has spent a certain amount of money and then start after another spending plateau is reached.

Student Loans

There are two kinds of loans available in the market place: 1. purely private loans given by financial institutions 2. loans that are backed by the federal government There are misleading advertising campaigns, as complicated as looking for mortgages, complex and lengthy forms. Additionally, lenders are eager to exploit students because the combination of loan guarantees and subsidy by the government makes these loans really profitable. Helpful Nudges: Simplify the financial aid application. The FAFSA application could also be combined with an annual tax return. Or help families start saving for college earlier and reduce the need for loans.

Confusion and Enrollment of Part D

There were 47 prescription drug plans offered. Most seniors were confused and were urged to turn to private institutions for assistance. Medical professionals were also confused. However, high enrollment rates were achieved: this is because they were automatically enrolled through a variety of routes, advertising campaigns boosted awareness. That said, many people are still not enrolled. This group is dominated by poorly educated people living just above the poverty line. The abundance of choice is overwhelming. With better design, consumer satisfaction could increase.

Availability

They assess the likelihood of risks by asking how readily examples come to mind. Accessibility and salience are closely related. Biased assessments of risk can perversely influence how we prepare for and respond to crises, business choices and the political process. Both private and public decisions can be improved if judgements are nudged back in the direction of true probabilities. Easily remembered events inflate people's probability judgements and if no such events come to mind, their judgements of likelihood might be distorted downwards.

Three social influences

Three social influences: information, peer pressure, priming.

Gambling self-bans

Through which addicts can keep themselves from being admitted to casinos, collecting gambling winnings, etc.

RISA and Company Stock

Treat company stock like 40(k) plan, now it enjoys the benefit of Employee Retirement Income Security Act: the exclusive benefit rule (requires the plans be managed exclusively for the benefit of participants), prudence rule (requires that the plans assets be invested according to a prudent investor) and the diversification rule (requires that the plan assets be diversified so as to minimize the risk of large losses). Company stock is exempt for the diversification requirements, which makes them most likely to be included in 401(k) plans. This needs to be changed.

Stickk.com

allows users to pre-commit to their goals. It provides them with a platform for publicizing their plans and, if they fail, it triggers automatic donations to charities they love—or, even more provocatively, charities they hate.

Nudge

any factor that significantly alters the behavior of humans.

Automatic System

associated with the oldest parts of the brain, uncontrolled, effortless, associative, fast, unconscious, skilled

Mandated Choice

can be implemented through a simple addition to the driver's license registration.

Rules of Thumb

can lead to systematic biases. Three heuristics: anchoring, availability, representativeness. Emerge from the interplay between the Automatic system and the reflective system.

Framing

choices depend in part on the way in which problems are stated. It works because people tend to be somewhat mindless, passive decision makers. The Reflective system does not do the work that would be required to check and see whether reframing the questions would produce a different answer.

Basic Principles of good Choice Architecture

choosers are human, so designers should make life as easy as possible. Send reminders and then try to minimize costs imposed on those who space out.

Asset-Allocation decision

choosing the appropriate mix of stocks and bonds. Higher risk bonds usually results in higher payouts, but there is the risk of higher losses.

Reflective System

controlled, effortful, deductive, slow, self-aware, rule-following

Social Security

defined-benefit plan, depends on the amount you have paid in taxes and the number of years you have worked. In the plan, the only decision the worker has to maker is when to start receiving benefits. Not a good plan for people who switch jobs a lot. Also expensive for employees to administer.

Equity Premium

difference in returns between Treasury bills and equities. Considered compensation for the greater risk associated with investing in stocks.

defined-contribution plans

employees make specific contributions to a tax-sheltered account in the employees name. 40(k) plans are completely portable, flexible (because the worker decides how much to contribute), however, take more effort to enroll and plan for than defined-benefit.

Enrollment Decisions

enrolling needs to be attractive — contributions are tax deductible, employer matches employee's contribution etc.

Automatic Tax Returns

for anyone who does not itemize deductions and has no income that is not reported to the IRS. To file, the taxpayer would need only to sign it and mail it (or, even better, go to a secure IRS Website, sign in and click). This is estimated to potentially save 225 million hours of tax preparation time and $2 billion a year in tax preparation fees.

Special licenses

for motorcycle riders who don't want to use helmets, requiring extra driving courses and proof of health insurance—less intrusive than a ban, more preventative than making helmets entirely optional.

Lifestyle funds

funds that blend stocks and bonds in a way that meets the needs of individuals' risk tolerance. Lifestyle funds: conservative, moderate, aggressive. So people only need to pick the fund that matches their risk preference.

Destiny Health Plans

incentivize people to make healthy choices by giving them "Vitality Bucks" when they do things that reduce the probability of medical bills (e.g., working out, getting good results on a blood-pressure check).

Libertarian Paternalism

libertarian because in general people should be free to do what they like. Strive for policies that maintain or increase freedom of choice. Paternalism lies in the clam that it is legitimate for choice architecture to influence people's behavior.

Ambitious Environmental Nudges

notify people of how much energy they have used throughout the day. Make energy use visible. Show that energy efficiency produces savings — have companies sign up for voluntary program

Explicit Consent for Organ Donation

people have to take concrete steps to demonstrate that they want to be donors. However, people's stated willingness to become donors did not translate into action. The default rule and inertia has a larger effect.

Choice Architecture: Defaults

people will take whatever option requires the least effort. Comes with implicit suggestion that this choice represents the normal or even recommended course of action. Establishing default rules are inevitable. When choices are complicated and difficult, most appreciate a sensible default.

Presumed Consent

preserves freedom of choice, but shifts the default rule.

Priming

refers to the mysterious workings of the Automatic System of the brain Subtle influences can increase the ease with which certain information comes to mind. Example: surveyors when measuring people's intentions, they affect people's conduct.

Standard Economic Theory about Saving

says that people calculate how much they are going to spend over a lifetime and save accordingly. This theory has several faults: it assumes that people are capable of complicated math to figure out how much to save. It also assumes that people have enough willpower to implement the relevant plan.

Channel Factors

small influences that could either facilitate or inhibit certain behaviors.

Pluralistic Ignorance

the ignorance about what other people think — we might follow a practice because we think most other people like it. Example: "Don't Mess with Texas"

Economic man

the notion that each of us thinks and chooses unfailingly well. Can make wrong forecasts, but can't be systematically wrong. New research has raised serious questions about the rationality of many judgements and decisions people make. False Assumption: All People almost all of the time make choices that are in their best interest or at the very least are better than the choices that would be made by someone else.

Swedish Privatization Plan of Social Security

the plan is a good example of the Just Maximize Choices strategy — Give people as many options as possible and then let them do whatever they want. The plan had the following features: allowed to form their own portfolios from pre-approved selections. default option was a fund carefully chosen. participants were encouraged to choose their own portfolios through advertising campaigns. any fund meeting certain standards was allowed to ender the system Information about the funds, past performance and risk provided in book form. Funds were permitted to advertise to attract money.

Routine Removal for Organ Donation

the state owns the rights to the body parts of the people who are dead or in certain hopeless conditions, and can remove their organs without asking permission. However, this violates the principal that individuals should be able to decide what is to be done with and to their bodies.

Collective Conservatism

the tendency of groups to stick to established patterns even as new needs rise.

Choice Architecture: Give Feedback

well-designed systems tell people when they are doing well and when they are making mistakes. Example: Low Battery Reminders.

Compensatory Strategy

when a high value for one attribute can compensate for a low value of another when making choices.

Mere-Measurement Effect

when people are asked what they intend todo, they become more likely to act in accordance with their answers.

Collaborative filtering

when the judgements of other people who share a consumers tastes are used to filter through the vast number of options in order to increase the likelihood that the consumer will pick an option that they like.

Post-completion error

when you have finished your main task, you tend to forget things relating to the previous steps. Example: ATM Machines

Charity Debit Cards

would be issued by banks and accepted only by charities, making donating simpler and more attractive by making it easier to keep track of contributions for tax purposes. Accounts could also reflect non-monetary donations, and statements could be sent directly to the IRS so that the government could automatically process the appropriate deductions.

Give More Tomorrow

would give people the chance to give a small amount to their favorite charities starting sometime soon, then commit to increasing their donations every year. Opting out would be easy, but this device would help those who want to give in general but forget to make good on their good intentions.

Marriage confers many major material economic and non-economic benefits

1. Tax benefits/burdens, especially if one spouse earns much more than the other. 2. Entitlements, e.g. employers must allow unpaid leave for workers to care for their spouses under the Family Medical Leave Act. 3. Inheritance and other death benefits, e.g. avoiding estate taxes. 4. Automatic ownership benefits. 5. Surrogate decision making, e.g. in cases of incapacitation. 6. Evidentiary privileges, e.g. a right to keep marital communications confidential and to exclude adverse spousal testimony.

What contributes to pollution?

1. Tragedy of the commons: If you engage in environmentally costly behavior, you will probably pay nothing for the environmental harms you inflict. 2. People do not get feedback on the environmental consequences of their actions.

Choice Architecture: Understanding Mappings

A good system of choice architecture helps people improve their ability to map and hence select options that will make them better off. Make information about various options more comprehensible. Price disclosure, use disclosure, etc.

Choice Architecture: Expect Error

A well designed system expects its users to make mistakes.

Mortgage Market situation

Borrowers can choose from a variety of fixed rate loans and numerous variable-rate loans. When markets get more complicated, unsophisticated or uneducated shoppers will be especially disadvantaged by the complexity. They are also more likely to be given bad advice. These factors are exaggerated in the market that caters to the poorest and highest risk buyers, subprime market.

Part D

Bush's plan that provided a half trillion dollar federal subsidy for prescription drug coverage. The government set minimum coverage requirements and approved all plans. Had four major defects as a system: 1. gave participants little guidance to help them make the best selection 2. its default option was non-enrollment 3. chose default at random for people who were automatically enrolled and ignored past medical history 4. failed to serve the poor and most poorly educated.

How should companies nudge employees to reduce holdings of company stock?

Companies should nudge employees to reduce exceptionally large holdings of company stock: Use the Save More Tomorrow approach. This approach allowed employees the option to sell off their share gradually. Why? 1. even if firms recognize that company stock is not great for employees, they don't want all or most employees to sell their stocks at once, which means that the sales will lower the stock's price. 2. firms do not want to be signaling that they think their stock is a bad investment.

Markets fix this problem?

Competition most of the time ensures that the price serves as a good indicator of quality. Irrational consumers are protected a little by competition. But firms have more incentive to cater to that irrational belief than to eradicate it. Example: Warranties

Improving School Choices

Complex Choice and Mental Shortcuts: To switch schools, parents would have to go through a series of complicated steps. Status Quo plays a big role in the choice of schools. Information is not simply put. Incentive Conflicts and Matching: Example — Boston System, became a game of strategy Nudging High Schoolers towards College: San Marcos, Texas: In order to graduate, a student must fill out application to nearby community college. College counselors talked about how much more money students could earn with a college degree in terms of the cars they could own. Standardized testing was provided free of charge. Increased college enrollment.

Self-control Strategies

Example: Clocky the Alarm Clock, stickk.com, Christmas Club

Better Incentives for Environmental Rescue

First, impose taxes or penalties on those who pollute. Second, Cap and Trade System: those who pollute are given rights to pollute in certain amounts and these rights are then traded in the market. This system allows more freedom and imposes lower costs. People who reduce their pollution below a specified level are allowed to trade their emission rights for cash. Rewards technological innovation. Pollution reduction can be turned into cash (acid deposition program)

Random Default plans in Part D

For its poorest and sickest citizens (those eligible for Medicare and Medicaid), it automatically assigned a randomly chosen default plan. Caused random harm. There were extremely low switching rates from the defaults, because inertia and status quo bias kept people from switching. Choosing the right plan, rather than a random one saves both the seniors and the government a lot of money.

How to make the Healthcare system better

Freedom of contract, alongside a few nudges, might work better in this context. If waiving the right to sue were the default, and retaining it would cost extra, most patients would probably waive. Alongside such waivers, states can also lower the administrative and litigation costs of medical malpractice by capping "noneconomic damages" (e.g., pain and suffering).

The Spotlight Effect

People expend effort conforming to social norms because they think that others are paying close attention to what they are doing.

Why this system in Healthcare doesn't work?

However, courts currently treat such waivers to be void as against public policy. The legal justification for tort liability in this context is that it deters negligence, but this argument is undermined by the fact that doctors pay the same premium no matter how many times they have been sued for malpractice. Moreover, most patients don't sue even if their doctor has been negligent, and those who do sue often end up with favorable settlements even when they don't deserve the money. Jury awards for pain and suffering tend to be erratic and unpredictable, as does the occasional awarding of punitive damages, making the right to sue look more and more like a lottery ticket.

Why do we need nudge? Degree of Difficulty

If decisions are difficult, help making them is required.

Saving Problems in the US

In 2005, on average Americans spent more than they earned and borrowed more than they saved. Increased borrowing rates were fueled by substantial growth in home equity loans and credit card debt. The fact that not many are saving exacerbates the looming problems facing the Social Security System. It seems clear that the cost of saving too little is greater than saving too much. Some people in our society are definitely saving too little. Many employees would prefer to be saving more, implying that they would be open to a nudge.

Failures of Part D

Not-User Friendly: Most seniors did not know how to use the Website. Additionally, the drug plans prices change second-to-second so there is always a different cheaper plan being suggested. People also consistently made bad choices for themselves even when the system was simplified. Nearly 2/3rds failed to choose the plan that minimized their out-of-pocket costs.

Why do we need nudge? Feedback

Learning is most likely if people get immediate, clear feedback after each try. If a situation is not structured to get good feedback, then we may benefit from a nudge.

Loss Aversion in Stocks and Bonds

Loss aversion makes it more difficult to invest in stocks, if checking it on a day to day basis, but if looking to cash them in on the long term, they will be less likely to loose and more likely to gain money, because over a long period of time stocks will be more likely to go up. Attitudes toward risks depends on the frequency with which investors monitor their portfolios. Even though more people should invest their money in stocks, their loss aversion makes stock less appealing. Showing them relevant data over a twenty year period positively influences this bias.

Ways to increase savings

Making Savings Automatic: change the default rule. Adopt automatic enrollment — results in participants joining sooner and more participants join eventually. Very few employees drop out of the program once enrolled, which suggests that workers preference for saving more. Forced Choosing and More Simplicity: Alternative to automatic enrollment is simply to require an active decision about whether or not to join the plan. Simplify the enrollment process. Choosing Contribution Rates: typically these programs adopt low default saving rates. Most employees remain at the default level. This is because people spend little time thinking about their rates — they use shortcuts, like picking a round multiple of five, or they contribute to the retirement account the minimum amount necessary to get the full employer match. Companies should pick round numbers and higher match thresholds to get people to save more. Education: education in itself is not an adequate solution. Employees often leave seminars excited to save more, but rarely follow through on their plans.

Faults in Employee's thinking about stocks

Many employees still do not think these risks apply to them. 1. they do not understand the risk-and-return profile of company stock 2. plan participants tend to extrapolate past performance into the future, even though past performance is no prediction of the future. 3. employees who receive an employer's matching contribution in company stock view that contribution as implicit advice. In general, workers are better off with a diversified mutual fund than with company stock.

How to increase Organ Donations

Norms: In Illinois — stresses importance of overall problem, social norms are brought into play. Use mandated choice.

Lack of Diversification in Stocks

Often people do not diversify at all and invest a lot of money in their employer's stock. This concentration is risky, because a single security is much riskier than the portfolios offered by mutual funds and workers risk losing both their jobs and the bulk of their retirement savings all at once.

Mortgage Market Reforms and Solutions

One strategy for reform: limit the set of permissible mortgages in order to make comparison easier. If there are fewer types of mortgages, people would be better at choosing more wisely. Also, the loan estimate must remain value for thirty days and the borrower must wait before purchasing a loan. Another strategy for reform: mortgage lenders would be required to report lending costs in two categories: fees and interest. This would ensure that buyers know what their payments will be when the teaser rate ends. Lenders would also have to provide a machine-readable detailed RECAP report, one that incorporates all the fees and interest rate provisions, including teaser rates, etc. This would allow independent third parties to offer good advice. This would make it easier to shop online, which would help women and minority groups.

Gains and Losses

People are loss averse. Example: Coffee Mugs and the Endowment effect. Loss aversion operates as a kind of cognitive nudge, pressuring us to not make changes, even when changes are in our better interest.

Optimism and Overconfidence

People are unrealistic, even when stakes are high. Unrealistic optimism explains a lot of individual risk taking. It characterizes people in most social categories.

Hot-Cold Empathy Gap

Self control issues arise when we underestimate the effect of arousal. When in a cold state, we do not appreciate how much our desires and behaviors will be altered when we are tempted.

Why do we need nudge? Benefits Now— Costs Later

Self-control issues are most likely to arise when choices and their consequences are separated in time. Investment goods (exercise, dieting, etc.) have the costs borne immediately and the benefits delayed. Sinful goods have the pleasure now and consequences later.

Credit Cards

Serve two functions: 1. they provide a mode of payment in lieu of cash 2. provides a ready source of liquidity if you want to spend more than you currently have in cash. Credit cards create serious problems because of people's lack of self-control. Nudges: Credit card companies should send annual reports that lists and totals all the fees that have been injured over the course of the year, so customers can get a better sense of what they are paying for. The report would make more salient how much they are paying over the course of a year. This would bring hidden fees into consumer conscious. Companies should be required also to allow automatic payment of the full bill (not just the minimum). When things are complicated, people are exploited.

Representativeness

Similarity heuristic. When asked to judge how likely is it that A belongs to category B, people answer by asking themselves how similar A is to their image or stereotype of B. Biases creep in when similarity and frequency diverge. Examples: World War II Bombings in London, Streak Shooting in Basketball, Cancer Clusters. The Use of representativeness heuristic can cause people to confuse random fluctuations with causal patterns.

Social influences come in two basic categories

The first involves information. If many people do something or think something, their actions and their thoughts convey information about what might be best for you to do or think. The second involves peer pressure. If you care about what other people think about you, then you might go along with the crowd to avoid wrath and curry favor.

Social change from a nudge

Sometimes massive social changes, in markets and politics alike, start with a small social nudge. Humans are easily influenced by the statements and deeds of others. Most People learn from others. Choice architects know how to encourage other socially beneficial behavior.

Conformity and Tax Compliance

Taxpayers told that 90% of citizens has already complied. Had huge effect on tax compliance.

Approach to Privatizing Marriages

The best approach might be an explicit formula based on such factors as the ages of both spouses, their earning capabilities, the length of marriage, and so forth. Starting with the formula as an anchor, a judge could weigh other considerations such as the standard of living during the marriage, the health of the spouse seeking maintenance, the financial prospects of both sides, and other relevant factors.

Feedback and Information for Environmental Rescue

The costs of pollution are hidden, but the prices of harmful commodities (like of gas) are salient. Need better disclosure. Requirement of Disclosure example — Emergency Planning and Community Right to Know Act: firms had to report to government the amount of chemicals they had stored or released into the environment. Information was readily available to anyone who wanted it. Spurred large reductions in toxic releases. Companies were worried about being on Environmental blacklist.

Dynamic Inconsistency

When initially people prefer A to B, but they later choose B over A.

Choice Architecture: Structure Complex Choices

When the choice set lets larger, decisions become more complicated and people are more likely to simplify their choosing strategies.

Why do we need nudge? Knowing what you like

When we have the time to sample the alternatives and learn about out tastes, we know what we like. But suppose that you have to forecast your preferences for the unfamiliar. Hard for people to make good decisions when translating the choices they face into the experiences they have. When People have a hard time predicting how their choices will end up affecting their lives, they have less to gain by numerous options and perhaps even by choosing for themselves.

Anchoring

You start with an anchor, the number you know, and adjust in the direction you think is appropriate. Even obviously irrelevant anchors creep into the decision making process. Anchors serve as nudges. The more you ask for, the more you tend to get.

Save More Tomorrow

a program of automatic escalation of contributions that coincide with pay raises. Refers to principles that underlie human behavior. 1. many participants think that they should be saving more but never follow though 2. self control restrictions are easier to adopt if they take place some time in the future 3. loss aversion, people hate to see their paychecks go down 4. money illusion; losses are felt in nominal, non-adjusted for inflation dollars 5. inertia plays a powerful role. Results: participation rates jump when enrollment is easy. For the most effective program, combine save more tomorrow with automatic enrollment.

Committed Action to Reduce and End Smoking

a savings program in which the participant opens an account with a minimum balance of $1. For six months, any money that would have gone toward cigarettes is deposited into the account. Then, the client takes a urine test and, if no recent smoking is detected, the money is returned. If the user fails, however, the account is closed and the money is donated to charity. Evidence shows that opening an account makes those who want to quit smoking 53% more likely to achieve their goal.