A new field study out of the Yale School of Management is the first to show the influence of well-known psychological tendencies on how much employees choose to save for retirement. The study reports that employees at a big firm chose to increase their retirement savings by up to 2.9 percent of their income after reading emails about the retirement plan containing certain cognitive cues, said James Choi, study co-author and associate professor of finance at the Yale School of Management. The paper is currently under review at the Review of Financial Studies.

Q Can you give me a basic overview of the study?

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A The study was a field experiment run at a large technology company where we were sending emails to employees about their 401k retirement savings plans. And what we were interested in testing was whether small savings cues in the email would influence employees’ subsequent savings choices.

Q What is a savings cue?

A It is basically an example savings rate, or savings level, that we constructed to try to activate some psychological mechanisms that had been previously documented in the psychology literature as affecting choices in the lab, but it was not clear whether those mechanisms would actually be effective for choices that were economically significant.

Q Can you spell out the psychological mechanisms that the savings cues were trying to leverage?

A There was the anchoring effect: an arbitrary numerical cue in the environment. There is goal setting, which is an ambitious goal presented to you causing you to perform at a higher level. And third is the use of salient savings threshold as a cognitive crutch as help for choosing a savings rate.

Q What did the study find?

A The take home message is that if you get high savings cues from your environment, then you will save more. If you get low savings cues from the environment, you will save less. Also, the fact that these employees’ savings choices were so malleable, that they were so heavily affected by one or two sentences in the middle of their email, really casts doubt on how much access we have to our fundamental savings preferences. Finally, given that people are so influenced by action cues in communications, it really puts a burden on policy makers and people who run institutions to be mindful of the cues that they put in their communications, because even unintentional cues can have very large effects on subsequent choices.

Q How did the company respond to your findings?

A The tech company was very happy with our study because their goal was to increase the savings of their employees. And even though we found that in the low cue conditions people saved less than in the high cue conditions, overall all groups of employees ended up saving more than they used to.

Q How ethical is it to use cues and anchors to fundamentally change peoples’ behaviors?

A I think what we have documented is that there is this force that is potent and that can be wielded for good or for evil. It is a tool, and the moral consequence of using the tool is going to be in the hands of those who wield it. With all this said, I think we are exposed to cues all the time, and I think it is hard to construct environments where there are no cues, and so we want to be mindful how we wield the cues, rather than saying we shouldn’t have any cues at all.

Q Are you planning any follow-up studies?

A We are still working with the same company, but we are exploring other phenomena. We are trying to more rigorously evaluate whether financial education is effective in changing behavior. What we have shown in the current study is that information-free interventions can sway behavior a lot, and we want to go to the other extreme in asking the question whether providing a lot of information sways behavior.