Wednesday, August 6, 2014

Learning about your peers' savings choices can be demotivating

Peer information interventions involve disseminating information about what a target population’s peers typically do. By sharing this information, it may be possible to teach people that a certain behavior is more common than they had previously believed, motivating those people to engage in the behavior more themselves. This approach has been dubbed “social norms marketing” and is used at approximately half of U.S. colleges in an effort to reduce student alcohol consumption. ...

We conducted our experiment in partnership with a large manufacturing firm and its retirement savings plan administrator. ...

For the [non-saving] recipients, the two peer information mailings stated the fraction of employees in the relevant age bracket who were already enrolled in the savings plan. For the [low-saving] recipients, the two peer information mailings stated the fraction of savings plan participants in the relevant age bracket contributing at least 6% of their pay on a before-tax basis to the plan. ...

We find that among [non-saving] recipients with a 0% contribution rate default—those whom we expected to be most susceptible to our information treatment—receiving peer information significantly reduced the likelihood of subsequently enrolling in the plan from 9.9% to 6.3%, a decrease of approximately one-third. ...

We find that the oppositional reaction among [non-saving] recipients with a 0% default is concentrated among employees with low relative incomes. This result raises the possibility that information about peers’ savings choices discourages low-income employees by making their relative economic status more salient, reducing their motivation to increase their savings rates and generating an oppositional reaction.
--Beshears et al., "The Effect of Providing Peer Information on Retirement Savings Decisions," on when disseminating peer information backfires