Move Over, 401(k) and Richard Thaler

What is a 401(k) plan, you ask? Something like a PF account for us here in India.

And what about it, you ask? Well, this:

In the early days of 401(k) plans, Thaler noted, many workers failed to join—even with generous matching contributions from the employer—because the process was too complex, full of decisions and financial terminology. In effect, sludge.
In 2004, however, Thaler co-authored a paper with UCLA economist Shlomo Benartzi that outlined simple ways to improve the choice architecture for encouraging employees to choose a retirement savings plan—starting with the default option of being opted into an indexed fund unless the employee took the additional step of choosing something else. This simple change in choice architecture has profoundly impacted the retirement savings market.

For years now, whenever I teach behavioral economics, I talk about this paper. A classic in its field, of course. And in order to get students to appreciate the point better, I give them an example that will resonate better with them. And when it comes to choice fatigue, what can be a better example than ordering a Subway sandwich?

Lots of reasons to love this ad, but I think I’ve got the nerdiest reason of the lot! Now all that remains is to figure out how to get Tanmay Bhat or/and Devaiah Bopanna into a class to talk about behavioral economics!

(Videos are usually reserved for Sundays in these parts, of course, but this was just too good, and well, I went ahead and ate the cookie. IYKYK!)

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