Mindless Pitfalls: Don’t Leave 401(k) Automatic Enrollment Plans Alone

The shift from an "opt-in" to "opt-out" defaults (i.e., automatic enrollment) is one of the clearest successes to emerge from behavioral economics. But for all their advantages, opt-out policies can have diverse and severe limitations.

First and foremost, because opt-out policies yield decisions through the inaction of the decisions through the inaction of the decision maker, they are less likely to engender the kind of committed follow-up that is often useful when it comes to implementing the decision. An employee who is automatically enrolled is unlikely to go to the same trouble to manage his savings as someone who has affirmatively expressed a desire to get one. This effect may go beyond pure self-selection; the act of affirmatively making a decision maker's satisfaction and commitment above and beyond what the same decision maker would exhibit if the decision were passive.

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