It’s hard to overestimate the power of laziness and procrastination, particularly when it comes to dealing with things like making appointments and dealing with paperwork. One consequence of this is that a surprising number of people end up not doing things they actually want to do (or at least believe they should do), simply because they never quite get around to it or just can’t deal with the hassle.
The consequences of this kind of procrastination are often not trivial. As I once wrote, “Each year, Americans waste hundreds of millions of dollars because they don’t file their taxes on time. The Harvard economist David Laibson has shown that American workers have forgone huge amounts of money in matching 401(k) contributions because they never got around to signing up for a retirement plan.” And it’s not just passing up free money. People also often endanger their health by not getting cancer screenings or taking their medicine regularly. The simple lesson is that if people have to do an unpleasant or annoying task to achieve a goal, even if that goal is quite valuable, many never get there.
There are, of course, myriad recommendations for how you can deal with a procrastination mindset, and get yourself to solve problems when they arise rather than adopting the apocryphal advice of Ben Franklin, “Never put off until tomorrow what you can do the day after tomorrow.” But that involves a lot of willpower and a willingness to change. And in lieu of that, there is a surprisingly effective solution for getting people to do those things they should do but don’t: just change the default from opt-in to opt-out. In other words, in the case of a retirement plan, instead of requiring people to opt-in to the plan and decide what percentage of their salary they want to contribute each month, automatically enroll them in the plan at a set savings level, while giving them the option to opt out.
In principle, if humans were purely rational beings, this change shouldn’t make a difference. People want to save as much as they want to save, so whether they have to opt-in to the plan to do so or not should not affect their behavior. But in fact, and perhaps unsurprisingly, it can have a quite large effect. In one NBER study, a company that switched to automatic enrollment for new hires found that the plan…