Tsaiberspace

The Marketplace of Perceptions in this bi-month’s (March-April 2006) Harvard Magazine describes an effort to quantify what most people already intuitively know to be true:

• People like to procrastinate (“People act irrationally in that they overly discount the future”). A company insisting on a yes/no answer to 401(k) participation within 30 days (with frequent e-mail reminders) yielded a 30-percent increase in participation rates over a different company that simply waits for the employee to make a phone call or submit paperwork.
• People’s thoughts are heavily influenced and framed by the present. A lending bank sent different versions of mailings to get people to apply for loans. The variables included providing photos of “employees” of varying race and gender, loan tables of varying complexity, stated deadlines (“limited time offer!”), and gimmicks (“enter a lottery for a free cell phone!”). Among men, a letter including a woman’s photo instead of a man’s photo yielded results equivalent to 1-5 percentage points of interest.
• People value revenge. It was found that people are willing to pay to punish “unfair” behavior, even (especially) if the “unfair” behavior generates a gain for both parties.

The article references the paper: $100 Bills On The Sidewalk: Suboptimal Saving In 401(k) Plans, James J. Choi, David Laibson, and Brigitte C. Madrian.

The findings are rather sad. The loan experiment found that even with a “big” loan at stake (10% of monthly income), people were easily influenced by framing irrelevant to the proposition. The 401(k) paper found that even when allowed to make discretionary penalty-free withdrawals from their 401(k)s (people over 59½ years old who are still employed), and even when explicitly educated on the matter, people still “chose” to forgo the “free lunch” (the employer match, on the order of $3000 per year).