Through a field experiment in Afghanistan, we show that default enrollment in payroll deductions increases rates of savings by 40 percentage points, and that this increase is driven by present-biased preferences. Working with Afghanistan’s primary mobile phone operator, we designed and deployed a new mobile phone-based automatic payroll deduction system. Each of 967 employees at the country’s largest rm was randomly assigned a default contribution rate (either 0% or 5%) as well as a matching incentive rate (0%, 25%, or 50%). We find that employees initially assigned a default contribution rate of 5% are 40 percentage points more likely to contribute to the account 6 months later than individuals assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. We also find evidence of habit formation: default enrollment increases the likelihood that employees continue to save after the trial ended, and increases employees’ self-reported interest in saving and sense of financial security.
Joshua Blumenstock, Michael Callen, Tarek Ghani
Financial services for the poor, Technology for development
Blumenstock, JE, Callen, MC, Ghani, T, Koepke, L (2015). Promises and Pitfalls of Mobile Money in Afghanistan: Evidence from a Randomized Control Trial
Blumenstock, JE, Callen, MC, Ghani (2016). “Mobile-izing Savings with Automatic Contributions: Experimental Evidence on Dynamic Inconsistency and the Default Effect in Afghanistan.” http://www.jblumenstock.com/files/papers/BCG-MPaz-v01.pdf
Innovations for Poverty Action
Bill and Melinda Gates Foundation