Small cues change savings choices

Research Retrieved: January 2018
Retrieve the paper from ScienceDirect


Can one to two sentences influence contribution rates to a 401(k) plan, even if the cues do not add information? The authors answer this question by running two field experiments with employees of a large technology company. They tested different cues that can be divided into three categories. First, anchors present an arbitrarily chosen increase of the contribution rate. The second type of cue involves thresholds based on employer’s matching conditions to the participants. Third, arbitrarily chosen savings levels were given as examples of savings goals in some emails.

Key Findings

High cues (i.e. high contribution rates, thresholds and savings levels) increased contribution rates by up to 2.9% of income, while low cues decreased contribution rates by up to 1.4% of income, compared with participants who received a control email. Anchors affected contribution rates for the longest time (i.e. up to a year), while the effect was delayed by several months. Especially high anchors decreased the likelihood of a change in contribution rate for the first months. Very high anchors did not increase contribution rates more than moderately high anchors.

Emails with the savings thresholds did have an immediate effect, but this effect did not last as long and only kept participants away from the threshold. Adding the goal examples to the threshold cues amplified the effect of cues.


Practical Relevance

The paper shows that a simple one or two sentences added to an email communication can impact contribution rates significantly. Cue effects are especially effective when one compares them to the costly alternative of matching contributions by employers.

Furthermore, the authors give the intuitive explanation of why so many participants save at the default rate, the match threshold or the maximum contribution rate: these are obvious contribution rates! Placing other rates front-and-centre also shifts some participants towards those rates.