Henrik Cronqvist, Richard H. Thaler, and Frank Yu, “When Nudges are Forever: Inertia in the Swedish Premium Pension Plan.” American
Economic Association Papers and Proceedings 108: 153-158, 2018.
• Perhaps nudges such as default settings initially are quite powerful, but over time lose their influence as people get around to shifting to a preferred option.
• The Swedish Premium Pension Plan was initiated in 2000, and by 2016, served more than 7 million Swedes. The nudges that accompanied that plan have proven to have long-lasting consequences.
• One nudge concerned the default pension plan that savers were placed into if they didn't explicitly choose one of the hundreds of options.
• A second nudge involved trying to convince savers that they indeed should make a positive choice themselves, that is, that they should override the default. This second nudge was surprisingly effective, in that 2/3 of the initial pension participants made an explicit choice of their investment portfolio.
• But this second nudge only operated at and near the inception of the plan, in which the large initial cohort (4.4 million people) entered the pension scheme. The annual flow of new entrants then became much smaller, with less than 200,000 entering in 2016. As a result, the public and private advertising which constituted the second nudge dissipated within a few years. The percentage of enrollees choosing their own portfolio in subsequent cohorts fell to less than 10 percent by 2003, and after 2007 has always been four percent or below.
• Those in the initial, large cohort who stayed with the default tended to continue with the default, though more than one-quarter of them did eventually choose a different portfolio. Of those who initially chose to make their own portfolio choice, less than three percent later decided just to go with the default. They also displayed quite a bit of attachment to their initial portfolio choice, even though they could alter it more or less continuously if they so chose.
• The features of the default fund changed markedly in 2010 and 2011, removing a bias towards investments in Swedish companies (2010) and increasing the amount of leverage significantly (2011). These major reforms did not seem to alter the attractiveness of the default, few people opted out even though the financial characteristics of their pension plan were significantly changed.
• A 2017 corruption scandal at one of the leading pension funds also was not met with the huge abandonment of that fund that might have been expected.
• The Swedish pension nudges have had very significant, long-term effects! Nudge wisely!
• Perhaps nudges such as default settings initially are quite powerful, but over time lose their influence as people get around to shifting to a preferred option.
• The Swedish Premium Pension Plan was initiated in 2000, and by 2016, served more than 7 million Swedes. The nudges that accompanied that plan have proven to have long-lasting consequences.
• One nudge concerned the default pension plan that savers were placed into if they didn't explicitly choose one of the hundreds of options.
• A second nudge involved trying to convince savers that they indeed should make a positive choice themselves, that is, that they should override the default. This second nudge was surprisingly effective, in that 2/3 of the initial pension participants made an explicit choice of their investment portfolio.
• But this second nudge only operated at and near the inception of the plan, in which the large initial cohort (4.4 million people) entered the pension scheme. The annual flow of new entrants then became much smaller, with less than 200,000 entering in 2016. As a result, the public and private advertising which constituted the second nudge dissipated within a few years. The percentage of enrollees choosing their own portfolio in subsequent cohorts fell to less than 10 percent by 2003, and after 2007 has always been four percent or below.
• Those in the initial, large cohort who stayed with the default tended to continue with the default, though more than one-quarter of them did eventually choose a different portfolio. Of those who initially chose to make their own portfolio choice, less than three percent later decided just to go with the default. They also displayed quite a bit of attachment to their initial portfolio choice, even though they could alter it more or less continuously if they so chose.
• The features of the default fund changed markedly in 2010 and 2011, removing a bias towards investments in Swedish companies (2010) and increasing the amount of leverage significantly (2011). These major reforms did not seem to alter the attractiveness of the default, few people opted out even though the financial characteristics of their pension plan were significantly changed.
• A 2017 corruption scandal at one of the leading pension funds also was not met with the huge abandonment of that fund that might have been expected.
• The Swedish pension nudges have had very significant, long-term effects! Nudge wisely!
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