In the first article, I introduced Choice Architecture and shared three examples how default options could lead to changes in healthcare at the personal and national levels. Here, I will focus on how the same concept was used in nudging people to make better savings and financial decisions by changing how the choices were presented. The examples will focus on retirement accounts and savings for future purchases.
  1. Retirement Savings enhanced by designing default options: The “Save More Tomorrow” (SMarT) program used defaults to increase employees’ savings rates by automatically increasing the percentage of their wage devoted to saving.

Average saving rates for SMarT program participants increased from 3.5% to 13.6% over the course of 40 months while savings rates remained stagnant in the other two conditions. This is one of the most famous nudges. Benartzi & Thaler. Save More Tomorrow, Journal of Political Economy
  1. Commitment Devices could encourage savings: Here, two saving accounts choices were offered to farmers in Malawi: “Regular” and “Regular + Time Commitment.” Time Commitment accounts allowed savers to restrict access to their own money until a designated date.

Only the commitment accounts helped farmers later to purchase 26% more agricultural inputs than the control group.

Brune et al. Commitments to Save: A Field Experiment in Rural Malawi, World Bank Policy Research Working
  1. Choice Architecture could mitigate Present-Bias: Few farmers in sub-Saharan Africa use fertilizer. In collaboration with International Child Support (ICS), an intervention was designed to test if providing mechanisms to save harvest income for future fertilizer purchase could be effective in increasing usage. The intervention, called the Savings and Fertilizer Initiative (SAFI), would help Kenyan farmers mitigate Present – Bias.

In the first season, the program increased fertilizer usage by 14%, on a base of 24%. In the second season, the increase was up to 18%, on a base of 26%. SAFI with ex ante timing choice was also successful, increasing usage by 22%.

Duflo et al. Nudging Farmers to Use Fertilizer : Theory and Experimental Evidence from Kenya, American Economic Review

As with the first article, my goal here is make us think if there are small changes that we could implement at our work places to navigate hard-to-change organizational, management or leadership behaviors.

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