Op-Ed

PrintPrint EmailEmail ShareShare CiteCite
Style:MLAAPAChicagoClose

loading...

Give People Choices, Not Edicts

Authors: Peter R. Orszag, Adjunct Senior Fellow, and Cass R. Sunstein
December 6, 2013
Bloomberg.com

Share

Over the past few years, many nations have adopted policies that promise to improve people's lives while preserving their freedom of choice. These approaches, informed by behavioral economics, are sometimes called nudges.

Nudges include disclosure policies, as in the idea that borrowers should "know before they owe." They include simplification, as in recent reductions in the paperwork requirements for the Free Application for Federal Student Aid.

Nudges include default rules, which establish what happens if people do nothing at all -- as with automatic enrollment in a savings plan. They also include reminders, such as text messages informing people they are about to go over their monthly allowance of mobile-phone minutes.

When the two of us worked in the Obama administration, we were interested in approaches of this kind, because the evidence suggests they work. For example, the Credit Card Accountability Responsibility and Disclosure Act of 2009 imposes numerous disclosure requirements, which are helping to save consumers more than $20 billion in annual late fees and overuse charges.

In the U.S. and other nations, automatic enrollment has significantly increased participation in savings plans. A recent study found that in Denmark, automatic enrollment has had a larger impact than significant tax incentives in getting people to save. The study found that 99 percent of the retirement contributions made in response to tax incentives would have been saved anyway; by contrast, the bulk of the contributions made by people who were automatically enrolled in a retirement plan represented a net addition to saving.

View full text of article.

More on This Topic

Other Report

Global Korea

Authors: Scott Bruce, John Hemmings, Balbina Y. Hwang, Terence Roehrig, and Scott A. Snyder

South Korea has emerged as a major contributor to international security, participating in a wide range of activities far from the Korean...

Audio

Inside Korea (Audio)

Speakers: Hyun In-taek and Kim Tae-young
Presider: Charles L. "Jack" Pritchard

Hyun In-taek and Kim Tae-young discuss their experiences managing crises on the Korean peninsula in 2010 and their policy recommendations for...