Shlomo Benartzi’s work with behavioral nudges in the area of 401k saving and investing is by now widely known.
His collaboration with Nobel Laureate Richard Thaler and others in developing the academic arguments for automatic enrollment and escalation serve as the foundation for the popular plan design features used today.
His work with Thaler, specifically, on their Save More Tomorrow concept revolutionized the way the industry thinks (and acts) about retirement plan participation and coverage.
His more recent focus has been to take these behavioral precepts and apply them digitally, giving efforts to ensure greater retirement outcomes a proverbial shot in the arm.
The latest issue of Harvard Business Review features Benartzi and coauthor Saurabh Bhargava’s explanation of how plan participants reacted when various digital design elements were applied to “enrollment interfaces.”
Noting that the number of available choices and way information is received (in this instance a personalized email or a personalized video) made a dramatic impact on recipient behavior, “[t]he takeaway is that designs that increase engagement—and cut through the clutter of information—are much more likely to lead to behavior change.”
As for how it applies to 401ks specifically, Benartzi and Bhargava referred to their working paper from October 2018 produced in conjunction with Voya.
“As a part of the research, we surveyed several hundred 401k plan administrators and HR executives, and we asked them to predict how employees would respond to the design improvements that we had tested in the field,” the authors write. “We also asked them to identify which specific design changes would drive any employee response.”
The results
The results were striking, to say the least. Fully 88% of those surveyed “underestimated the influence of design on enrollment and only 12% of respondents were able to identify which of the three design changes most strongly drove changes to employee behavior.”
Furthermore, the administrators and executives “most confident about their forecasts were no more accurate than everyone else.”
“Too often, people see design as a visual garnish, a digital element that prettifies but adds little value,” Benartzi and Bhargava conclude. “But this research shows that digital design is so much more than that—it is an integral part of any product or service offering.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
