401(k) Specialist Issue 1 - 2018 - 16

401(k) PRACTICE
We're well aware of the sensational nature
of the question, but nevertheless muster the
courage to ask.
" Do you feel you should have shared the
Nobel Prize with Richard Thaler? "
It's a point raised by several top 401(k)
advisors since the committee's November
announcement of Thaler's win, most of
them referencing UCLA behavioral economist
Shlomo Benartzi's own groundbreaking
work in the discipline, as well as his
frequent collaboration with Thaler.
Benartzi seems genuinely surprised by
the query.
" Wow! " he says before quietly repeating
it. " Wow. I am flattered to hear that some
people feel this way and, um ... "
He's still a young man, so there's time.
" I'm still a young man, so we'll leave it
there, " Benartzi diplomatically concedes.
It's the only time he sounds unsure of
himself. The high-profile academic has
made it his mission to discover why people
behave the way they do, especially in the
area of 401(k) retirement investing, and how
to cost-effectively remove inherent biases
and barriers that prevent participants from
saving more.
A deep dive into the human psyche
would surely drive anyone mad, which is
why it probably requires a scholar's touch.
Yet the real-world results from Benartzi's
research play a large part in the auto-revolution
(enrollment, deferral, escalation), arguably
at a time it's needed most due to longer
lifespans and the defined benefit's demise.
While insight into the behavioral aspects
of retirement saving is fascinating and
effective, a shot of steroids in the form of
technology is making it exponentially more
so, and the focus of Benartzi's current work.
Jumping off the widely discussed concept
of behavioral " nudges, " or the theory that
subtle and indirect suggestions can positively
influence participant outcomes (which
also happens to be the title of Thaler's
bestselling 2009 book), Benartzi is currently
hyping digital nudges and the critically
important benefits they provide in helping
401(k) advisors pump enrollment rates.
For an idea of just how important, his
research shows that digital nudging is more
effective by " a factor of 100 " than traditional
nudging. But caution is warranted, he
adds. If 401(k) advisors and sponsors push
too hard or advocate for deferral rates too
high, damage can be done (more on that
later).
" Digital nudging is anything from how
you design a website, app or text message, "
he says. " It might be the content, the timing
or the visuals. It might be the technology
you employ when sending a 401(k) statement.
It could be a personalized, 60-second
video rather than a 40-page document. "
It's combining " all of the aspects of the
digital world together with a bit of psychology "
and (what else?) nudging.
Benartzi immediately points to three
advantages of doing so:
1) Speed- " You can do it very quickly, "
he simply states. By " it " he means sending,
receiving and analyzing the results of
enrollment and engagement efforts, and
determining if time and resources are better
allocated elsewhere.
2) Scale-It's easier to ramp up and reach
more people than with traditional nudge
methods.
3) Adaptability-We normally miss out
on the ability to learn from, and adjust for,
what's happened in the past. Not so with
digital nudges.
" We can run a lot of experiments and
A/B tests to try different language and
looks, as well as the time of day when we
ask people to save more, " Benartzi explains.
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401(k) Specialist Issue 1 - 2018

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