This paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees’ decisions to enroll in a Tax Deferred Account (TDA) retirement plan within a large university. The experiment encouraged a random sample of employees in a subset of departments to attend a benefits information fair organized by the university, by promising a monetary reward for attendance. The experiment multiplied by more than 5 the attendance rate of these treated individuals (relative to controls), and tripled that of untreated individuals within departments where some individuals were treated. TDA enrollment 5 and 11 months after the fair was significantly higher in departments where some individuals were treated than in departments where nobody was treated. However, the effect on TDA enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did. We provide three interpretations, differential treatment effects, social network effects, and motivational reward effects, to account for these results.

We propose that stock-market participation is influenced by social interaction. In our model, any given “social ” investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households—those who interact with their neighbors, or attend church—are substantially more likely to invest in the market than non-social households, controlling for wealth, race, education, and risk tolerance. Moreover, consistent with a peer-effects story, the impact of sociability is stronger in states where stock-market participation rates are higher. IN 1998, 48.9 PERCENT OF AMERICAN HOUSEHOLDS owned stock, either directly, or through mutual funds or various retirement vehicles such as 401(k) plans or IRAs. 1 While this number may appear low in an absolute sense—particularly in light of the historically high returns to investing in the stock market—it actually represents an all-time peak in the United States, and a dramatic increase from prior years. For example, less than a decade earlier, in 1989, the

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The paper discusses the current state of the behavioral finance literature. I argue that more direct evidence on investors ’ actions and expectations would make existing theories more convincing to outsiders and would help sort among behavioral theories for a given asset pricing phenomenon. Furthermore, evidence on the dependence of a given bias on investor wealth/sophistication would be useful for determining if the bias could be due to (fixed) information or transactions costs or is likely to require a behavioral explanation, and for determining which biases are likely to be most important for asset prices. I analyze a novel data set on investor expectations and actions obtained from UBS PaineWebber/Gallup. The data suggest that, even for high wealth investors, expected returns were high at the peak of the market, many investors thought the market was overvalued but would not correct quickly, and investors ’ beliefs depend strongly on their own investment experience. I then review evidence on the dependence of a series of “irrational ” investor behaviors on investor wealth and conclude that many such behaviors diminish substantially with wealth. As an example of the cost needed to explain a particular type of “irrational”

and the National Bureau of Economic Research provided helpful comments. We would also like to thank

Abstract: This paper has two goals. First, we discuss several emerging approaches to applied welfare analysis under non-standard (“behavioral”) assumptions concerning consumer choice. This provides a foundation for Behavioral Public Economics. Second, we illustrate applications of these approaches by surveying behavioral studies of policy problems involving saving, addiction, and public goods. We argue that the literature on behavioral public economics, though in its infancy, has already fundamentally changed our understanding of public policy in each of these domains.

22, 2000, for their helpful comments. Data used in this study are from the Health and Retirement The role of employer-provided pensions and social security in shaping households’ retirement and saving behavior has attracted an enormous amount of attention among both researchers and policy makers over the past 25 years. 1 In the research literature, the almost universal assumption is that workers are perfectly informed about the rules and regulations

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Many baby boomers are approaching retirement with perilously low levels of financial wealth and virtually no assets other than their homes (Lusardi and Mitchell 2007a). This is a particular concern for female-headed households which face many lean years ahead (David R. Weir and Robert J. Willis 2000). Yet little is known about why people fail to plan for retirement, and how planning as well as information costs shape retirement saving decisions. Lack of planning has important consequences for saving and portfolio choice: those who do not plan tend to accumulate far less wealth than those who plan, and nonplanners are also less likely to invest in stocks and tax-favored assets (Lusardi and Mitchell 2007c). This paper examines the factors central to women’s retirement planning, relying on a purpose-designed module we have developed for the 2004 Health and Retirement study (HRS) on planning and financial literacy. In this module, we have inserted several questions that measure basic levels of financial literacy, as well as questions to assess how respondents plan and save for retirement. Our research shows that older women in the United States have very low levels of financial literacy, and the majority of women have undertaken no retirement planning. Furthermore, financial knowledge and planning are clearly interrelated: women who display higher financial literacy are more likely to plan and be successful planners. Our findings can be of help to those seeking to enhance older women’s retirement security. Both employers and governments have devoted effort to seminars, educational programs, and retirement planning products in the last decade,