Some of the most successful applications of behavioral economics are \"opt-out\"

Question

Some of the most successful applications of behavioral economics are "opt-out" programs, which automatically enroll eligible people unless they explicitly choose not to participate. The incentives and freedom of choice are exactly the same as in "opt-in" programs, where members must choose to participate, but enrollments are significantly higher under opt-out. Here's a look at three remarkable results
Discussion Questions: (1) How would a behavioral economist explain the disparity in 401(k) enrollments among young employees between opt-out and opt-in programs? (2) Opt-in and opt-out programs ask us to make the same decisions, but achieve different results. Use the concepts of the framing effect and non-rational behavior to explain why. Some of the most successful applications of behavioral economics are "opt-out" programs, which automatically enroll eligible people unless they explicitly choose not to participate. The incentives and freedom of choice are exactly the same as in "opt-in" programs, where members must choose to participate, but enrollments are significantly higher under opt-out. Here's a look at three remarkable results
Discussion Questions: (1) How would a behavioral economist explain the disparity in 401(k) enrollments among young employees between opt-out and opt-in programs? (2) Opt-in and opt-out programs ask us to make the same decisions, but achieve different results. Use the concepts of the framing effect and non-rational behavior to explain why. Some of the most successful applications of behavioral economics are "opt-out" programs, which automatically enroll eligible people unless they explicitly choose not to participate. The incentives and freedom of choice are exactly the same as in "opt-in" programs, where members must choose to participate, but enrollments are significantly higher under opt-out. Here's a look at three remarkable results
Discussion Questions: (1) How would a behavioral economist explain the disparity in 401(k) enrollments among young employees between opt-out and opt-in programs? (2) Opt-in and opt-out programs ask us to make the same decisions, but achieve different results. Use the concepts of the framing effect and non-rational behavior to explain why.

Explanation / Answer

1) Under opt-in progrmas, employees get chance to first evaluate the programs and then participate. Conversely, under opt- out programs, employees get to decide after being enrolled whether to continue or exi--------t the programs after evaluation.

According to behavioral econmists, the main reason for the disparity in 401(k) enrlollments among young employees between opt-out and opt-in programs is human tendency to procrastinate. After being enrolled iin the program automatically undr opt-in enrollment, employees who evaluate the benefits and costs of the programs for them and wanted to remove themselves from it usually procrastinate when it comes to changing allocations and contribution levels.

Employees are passive when it cpmes to being enrolled in such program that led to very less number of enrollment under opt-in system than otp-out sytem under which they automatically get enrolled. and get passive for opting out if they want to.

Beside the enrollment of lower income and minority workers also get to increase in large numbers automatically as they have lowest comfort level with financial matters which made them not to enrolled themselves under opt-in sytem.

Human tendencey to postpone unpleasant taks such as such as saving than spending is the main reason for it.

2) Taking rationally both the programs would have seen the same numbers of enrollment either people decide to get in or get out.

But we see a huge disparity which signifies non rational behavior of these enrolless. While nero classical econmists see human/consumers as fuly rational, behavioral economists see some flaws as well. Human decisiosn sometimes fruaght with errors and systematic biases such as people have trouble making long term decisiosn and focus more on present circumstances than thos ein future which shows non rationality. Evidences can be found in result of actual household behavior in contrats with life cycle theory as well.

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