Is Your 401(k) Now a 201(k)?

Question: How can people be encouraged to save money?

 

Richard Thaler: Everyone’s lost a lot of money on their 401k plans. I’ve heard some people calling them 201k plans. So it’s even more important to get people to be saving more for retirement. Behavioral economics has helped us learn a lot about how to do that.

One simple way is what’s called automatic enrollment. Now this is just changing what are called the default options.

In a typical 401k plan, when you first become eligible you get a big pile of forms and you’re told, fill out these forms if you want to join. Tell us how much amount you’ve saved and how you want to invest the money. In, under automatic enrollment you get that same pile of forms but the top page says, if you don’t fill out these forms, we’re going to enroll you anyway and we’re going to enroll you at this saving rate and in these investments. If you don’t want to join, then sign here that says I don’t want to join. That increases the number of people who joined, and the speed at which they joined, by a huge amount.

There’s a second component of a good savings plan, which is something that a colleague of mine called Schlomo Benartzi and I developed many years ago, that we call “save more tomorrow.”

“Save more tomorrow” is a nudge to help people do what they know they want to do, which is save more, but they can’t bring themselves to save more now. Just like many of us are planning to go on diets next month, or maybe in two months, certainly not tonight.

So, here’s how “save more tomorrow” works. A company invites their employees to sign up for a plan where every time they get a raise, some part of that raise goes to increasing their contribution rate to the 401k plan. In the first company we convinced to adopt this plan, saving rates tripled.

No one was forced to do it, right? So, this was a nudge.

 

Question: How can the US government nudge companies to nudge employees to save money?

 

Richard Thaler: In 2006, Congress adopted the following law, it’s called the Pentium Protection Act. It’s actually a 900 page bill, but there’s two paragraphs that are nudges. What it says is, that if a company has those two features, automatic enrollment and a primitive kind of “save more tomorrow”, they have to enroll people at least a 3% saving rate and they have to automatically escalate that at least 1% a year, for at least three years, and if they do those two things, and they have a match, so the company contributes something to the plan as well, so they have those three things, then they get a free pass on some compliance form that companies find very onerous, that shows that not too much of the benefits are going to the highest paid workers. They get that free pass because if they’ve adopted those things, then it’s almost certainly the case that they’re in compliance.

I think this is a perfect illustration of nudging, of light handed regulation, it’s not telling companies you must have automatic enrollment, you must have “save more tomorrow,” you must have a match. It’s telling them if you want to do that, then here’s a little carrot, you won’t have to fill that form out. I think that’s a great model for how government can use nudges in regulation.

 

Recorded on: June 19, 2009.

Richard Thaler reveals how to be frugal without thinking about it.

Study helps explain why motivation to learn declines with age

Research suggests that aging affects a brain circuit critical for learning and decision-making.

Photo by Reinhart Julian on Unsplash
Mind & Brain

As people age, they often lose their motivation to learn new things or engage in everyday activities. In a study of mice, MIT neuroscientists have now identified a brain circuit that is critical for maintaining this kind of motivation.

Keep reading Show less

New brain scan analysis tool can detect early signs of dementia

Researchers develop the first objective tool for assessing the onset of cognitive decline through the measurement of white spots in the brain.

Credit: Gorodenkoff/Shutterstock
Mind & Brain
  • MRI brain scans may show white spots that scientists believe are linked to cognitive decline.
  • Experts have had no objective means of counting and measuring these lesions.
  • A new tool counts white spots and also cleverly measures their volumes.
Keep reading Show less

This is what aliens would 'hear' if they flew by Earth

A Mercury-bound spacecraft's noisy flyby of our home planet.

Image source: sdecoret on Shutterstock/ESA/Big Think
Surprising Science
  • There is no sound in space, but if there was, this is what it might sound like passing by Earth.
  • A spacecraft bound for Mercury recorded data while swinging around our planet, and that data was converted into sound.
  • Yes, in space no one can hear you scream, but this is still some chill stuff.

First off, let's be clear what we mean by "hear" here. (Here, here!)

Sound, as we know it, requires air. What our ears capture is actually oscillating waves of fluctuating air pressure. Cilia, fibers in our ears, respond to these fluctuations by firing off corresponding clusters of tones at different pitches to our brains. This is what we perceive as sound.

All of which is to say, sound requires air, and space is notoriously void of that. So, in terms of human-perceivable sound, it's silent out there. Nonetheless, there can be cyclical events in space — such as oscillating values in streams of captured data — that can be mapped to pitches, and thus made audible.

BepiColombo

Image source: European Space Agency

The European Space Agency's BepiColombo spacecraft took off from Kourou, French Guyana on October 20, 2019, on its way to Mercury. To reduce its speed for the proper trajectory to Mercury, BepiColombo executed a "gravity-assist flyby," slinging itself around the Earth before leaving home. Over the course of its 34-minute flyby, its two data recorders captured five data sets that Italy's National Institute for Astrophysics (INAF) enhanced and converted into sound waves.

Into and out of Earth's shadow

In April, BepiColombo began its closest approach to Earth, ranging from 256,393 kilometers (159,315 miles) to 129,488 kilometers (80,460 miles) away. The audio above starts as BepiColombo begins to sneak into the Earth's shadow facing away from the sun.

The data was captured by BepiColombo's Italian Spring Accelerometer (ISA) instrument. Says Carmelo Magnafico of the ISA team, "When the spacecraft enters the shadow and the force of the Sun disappears, we can hear a slight vibration. The solar panels, previously flexed by the Sun, then find a new balance. Upon exiting the shadow, we can hear the effect again."

In addition to making for some cool sounds, the phenomenon allowed the ISA team to confirm just how sensitive their instrument is. "This is an extraordinary situation," says Carmelo. "Since we started the cruise, we have only been in direct sunshine, so we did not have the possibility to check effectively whether our instrument is measuring the variations of the force of the sunlight."

When the craft arrives at Mercury, the ISA will be tasked with studying the planets gravity.

Magentosphere melody

The second clip is derived from data captured by BepiColombo's MPO-MAG magnetometer, AKA MERMAG, as the craft traveled through Earth's magnetosphere, the area surrounding the planet that's determined by the its magnetic field.

BepiColombo eventually entered the hellish mangentosheath, the region battered by cosmic plasma from the sun before the craft passed into the relatively peaceful magentopause that marks the transition between the magnetosphere and Earth's own magnetic field.

MERMAG will map Mercury's magnetosphere, as well as the magnetic state of the planet's interior. As a secondary objective, it will assess the interaction of the solar wind, Mercury's magnetic field, and the planet, analyzing the dynamics of the magnetosphere and its interaction with Mercury.

Recording session over, BepiColombo is now slipping through space silently with its arrival at Mercury planned for 2025.

End gerrymandering? Here’s a radical solution

Why not just divide the United States in slices of equal population?

Image: u/curiouskip, reproduced with kind permission.
Strange Maps
  • Slicing up the country in 10 strips of equal population produces two bizarre maps.
  • Seattle is the biggest city in the emptiest longitudinal band, San Antonio rules the largest north-south slice.
  • Curiously, six cities are the 'capitals' of both their horizontal and vertical deciles.
Keep reading Show less
Quantcast