The Effect of Providing Peer Information on Retirement Savings Decisions

Transcription

1 The Effect of Providing Peer Information on Retirement Savings Decisions i John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Katherine L. Milkman

2 Why might people imitate peers? Peers know something that I don t (Banjeree, 1992; Bikhchandi, Hirshleifer, and Welch, 1992; Ellison and Fudenberg, 1993) Peer behavior reveals social norms (Akerlof, 1980; Bernheim, 1994; Akerlof and Kranton, 2000)

3 Empirical evidence of peer effects Retirement savings Stock market participation Technology adoption Criminal activity Education Welfare usage Car purchases Contraception Littering

4 Social norms marketing Tll Tell people what their hi peers do Field evidence of social norms marketing efficacy Restaurant entrée selection Music downloads Small charitable donations Towel re use in hotels Theft of petrified wood Stated intentions to vote Household energy consumption

5 48% of U.S. 4 year colleges and universities have conducted a social norms marketing kti campaign

6 Today: Field experiment at a large firm to test the effect of social marketing on savings Target employees: 401(k) non participants Treatment: Randomized receipt of information about peer 401(k) participation rates Measured outcome: Recipients subsequent 401(k) enrollments

7 Social market to increase retirement saving? Fortune 500 manufacturing firm 20% of workers unionized 401(k) plan Immediate eligibility 21 mutual funds (11 target date)

8 Match thresholds Match threshold Match structure 1 6% Match structure t 2 2% up to $325 Match structure 3 8% Match structure 4 6% Match structure 5 4% Match structure 6 6% Match structure 7 0%

9 Automatic 401(k) enrollment Non union Non participants atii a t automatically ati ally enrolled on January 1, 2008 New hires after January 1, 2008 automatically enrolled after 60 days Union Opt in enrollment

10 Sample selection Non union Union Never enrolled Enrolled, contributing < 6% Enrolled, contributing 6% Never enrolled Enrolled, contributing < 6% and < threshold Enrolled, contributing 6% or threshold Quick Enrollment Easy Escalation Quick Enrollment Easy Escalation

11 Passivity taxonomy of sample Quick Enrollment Easy Escalation Non union Union Non union Union Never enrolled Never enrolled Enrolled, contributing < 6% Enrolled, contributing < 6% and < threshold Active decision i Passive Active decision i Active decision i

12 Effect of QE / EE at this firm Enrollment / Cont. Before During escalation Intervention Intervention Difference QE, union 2.0% (0.4) 7.6% (0.8) 5.6%*** (0.9) QE, non-union 2.9% (0.8) 2.3% (0.7) -0.7% (1.1) EE, union 80% 8.0% 10.6% 26%* 2.6% (0.9) (1.1) (1.5) EE, non-union 9.4% (0.5) 8.2% (0.5) -1.1% (0.8)

13 Quick Enrollment letter without peer information

14 Quick Enrollment letter with peer information

15

16 Join the 87% of year old employees at <company> who are already in the <plan>.

17 Easy Escalation letter without peer information

18 Easy Escalation letter with peer information

19 Join the 76% of year old <plan> participants at <company> who are already contributing at least 6% to the <plan>.

20 Three randomly assigned letters (sent to nonparticipants): No peer information Information about other employees in the same 5 year age bucket as the letter recipient Information about other employees in the same 5 year age bucket as the letter recipient

21 Random assignment of an illustrative 24-year-old employee: A. No peer info B. Peer info from employees aged (participation rate of 82%) C. Peer info from employees aged (participation rate of 77%) D. Also compare to 25 year old employee receiving peer info from employees (participation rate of 87%)

22 100 Peer information Participation rates

23 100 Peer information Fraction of participants contributing >=6%

24 Peer information presence effect, Union employees Enrolled in next 2 months 9.9% 6.5% Peer info effect: 3.4%* (1.9) No peer info Peer info

25 Peer information presence effect, Union non-participants Contribution rate change Peer info effect: 0.58% 0.19%* 0.39% (0.10) No peer info Peer info

26 Peer information presence effect, Non-union employees Enrolled in next 2 months 3.0% Peer info effect: 2.3% (1.3) 0.7% No peer info Peer info

27 Peer information presence effect, Non-union non-participants Contribution rate change Peer info effect: 0.13% (0.09) 0.17% 0.04% No peer info Peer info

28 Peer information presence effect, Union participants Increased contrib. in next 2 months 10.6% 10.6% Peer info effect: 0.1% (2.4) No peer info Peer info

29 Peer information presence effect, Non-union participants Increased contrib. in next 2 months 8.2% 8.3% Peer info effect: 0.1% (1.1) No peer info Peer info

30 Table 6: Peer info presence effect Enrollment / Contribution escalation Non- participants, Non- participants, Participants with low cont. rates, Participants with low cont. rates, union non-union union non-union Peer info received -0.04** (0.02) (0.01) (0.03) (0.01) Male dummy ** 0.00 (0.02) (0.02) (0.03) (0.01) log(tenure) -0.03*** *** (0.01) (0.01) (0.01) (0.01) log(salary) 0.04** 0.05** *** (0.02) (0.03) (0.04) (0.01) Cont. rate dummies No No Yes Yes log(balance) 0.02** 0.01*** (0.01) (0.00) Sample size N = 1,024 N = 399 N = 746 N = 2,753

31 Table 6: Peer info presence effect Contribution rate change Non- participants, Non- participants, Participants with low cont. rates, Participants with low cont. rates, union non-union union non-union Peer info received -0.21* (0.11) (0.08) (0.10) (0.06) Ml Male dummy (0.11) (0.11) (0.10) (0.05) log(tenure) -0.19*** -0.08* *** (0.05) (0.04) (0.06) (0.03) log(salary) 0.23** 0.33** *** (0.11) (0.15) (0.14) (0.10) Cont. rate dummies No No Yes Yes log(balance) 0.07** 0.08*** (0.03) (0.01) Sample size N = 1,024 N = 399 N = 746 N = 2,753

32 Estimating peer information number magnitude effect Problem Peer number is correlated with age Age is correlated with propensity to respond Solution Include linear age spline with knot points every 5 years starting at age 22.5

33 Table 7: Peer info number effect Enrollment / Contribution escalation Non- participants, Non- participants, Participants with low cont. rates, Participants with low cont. rates, union non-union union non-union Peer info number -1.74** 1.15** (0.73) (0.57) (1.90) (0.81) Ml Male dummy * 006* (0.02) (0.03) (0.03) (0.01) log(tenure) -0.02* -0.02** *** (0.01) (0.01) (0.02) (0.01) log(salary) ** *** (0.02) (0.04) (0.06) (0.02) Cont. rate dummies No No Yes Yes log(balance) *** (0.01) (0.00) Sample size N = 687 N = 264 N = 511 N = 1,822

34 Effects of variation in peer behavior For union workers, a ten percentage point increase in the participation rate of the comparison group reduces enrollment likelihood by 17.4% (**). For non union workers, a ten percentage point increase in the participation rate of the comparison group increases enrollment likelihood by 11.5% (**).

35 Table 7: Peer info number effect Contribution rate change Non- participants, Non- participants, Participants with low cont. rates, Participants with low cont. rates, union non-union union non-union Peer info number ** 5.92** * (4.59) (3.01) (7.09) (4.24) Ml Male dummy * 028* (0.13) (0.17) (0.12) (0.06) log(tenure) -0.10* -0.13** *** (0.06) (0.05) (0.08) (0.05) log(salary) ** ** (0.13) (0.23) (0.21) (0.15) Cont. rate dummies No No Yes Yes log(balance) l 007* 0.07* 009*** 0.09*** (0.04) (0.02) Sample size N = 687 N = 264 N = 511 N = 1,822

36 Table 8: Sources of identification Enrollment Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number -1.93** 1.50* (0.81) (0.87) (1.22) (1.05) Knocking out age bucket discontinuities Knocking out 5 year vs. 10 year peer number difference Contribution rate change Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number ** 9.08* (5.05) (5.17) (7.57) (4.02)

37 Table 9: Robustness Enrollment Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number -1.72** 1.44** -1.91*** 1.06* (0.73) (0.68) (0.72) (0.58) Age spline with knot points every 2.5 years Controlling for target retirement date fund offered Contribution rate change Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number ** 7.32** ** 6.21* (4.61) (3.36) (4.53) (3.45)

38 Table 9: Robustness Enrollment Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number -2.08*** 1.05* -1.76** 1.29* (0.80) (0.62) (0.75) (0.68) Controls for years from age group mean (linear, squared) Controls for percentile within age group (linear, squared) Contribution rate change Nonparticipants, Nonparticipants, Nonparticipants, Nonparticipants, union non-union union non-union Peer info number ** ** 7.16* (4.98) (3.69) (4.65) (3.91)

39 Possible mechanisms Union non participants were surprised by how few coworkers saved Problem: Union enrollment is decreasing in peer info number

40 Possible mechanisms Union non participants believe their optimal savings choice is negatively correlated with coworkers savings choices Problem: Why don t union participants believe the same thing? Problem: Zero correlation seems plausible, but Problem: Zero correlation seems plausible, but negative correlation may not be

41 Potential mechanisms Union members were discouraged and demotivated by peer information Union members distrust messages sent to Union members distrust messages sent to them by the company

42 Possible mechanisms Union non participants distrust messages sent to them by the company Problem: Why don t union participants react the same way?

43 Main results: Non union Enrollment increases when peer info given Enrollment increases with the participation rate in the comparison group

44 Main results: Union Enrollment decreases when peer info given Enrollment decreases with the participation rate in the comparison group

45 Conclusion Social norms marketing can backfire for certain subgroups.

46 Main results Union and non union participants No significant peer info effect

47 Quick Enrollment Simplified enrollment mechanism 1. Check box on form 2. Return in pre addressed, postage paid envelope 3. You will be enrolled at 6% before tax contribution rate Age appropriate target retirement fund

48 Quick Enrollment effect at another firm 50% pating n Ever Partici avings Plan Fraction E in Sa 40% 30% 20% 10% 0% Time Since Baseline (months) Std. enrollment (2000) Std. enrollment (2001) Std. enrollment (2002)

49 Quick Enrollment effect at another firm 50% pating n Ever Partici avings Plan Fraction E in Sa 40% 30% 20% 10% 0% Time Since Baseline (months) Std. enrollment (2000) Std. enrollment (2001) Std. enrollment (2002) Quick enrollment (2003)

50 Easy Escalation Simplified way to raise contribution rate 1. Check box on form 2. Return in pre addressed, postagepaid envelope 3. Your contribution rate will be raised to 6%

51 Easy Escalation effect at another firm 14% 12% 10% 8% 6% 4% 2% 0% Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Fraction of participants with contribution rate < 6% Dec-05 Date New rate <6% New rate 6% New rate >6%

52 Sample characteristics Panel A: Non-participants Ui Union Non-union No peer information Information about 5-yr. age group Information about 10-yr. age group No peer information Information about 5-yr. age group Information about 10-yr. age group Percent male Age Mean Std. dev Tenure at company (years) Mean Std. dev Annual salary Mean Std. dev Sample size N = 343 N = 347 N = 349 N = 136 N = 130 N = 134

53 Sample characteristics Panel B: Participants with low contribution rates Union Non-union No peer information Information about 5-yr. age group Information about 10-yr. age group No peer information Information about 5-yr. age group Information about 10-yr. age group Percent male Age Mean Std. dev Tenure at company (years) Mean Std. dev Annual salary Mean (thousands of $) Std. dev Before-tax cont. Mean rate Std. dev Before-tax Mean balance Std. dev Sample size N = 235 N = 255 N = 256 N = 931 N = 916 N = 911