Behavior Change for Good Newsletter

Spotlight: Changing Behavior with Team Scientist Shlomo Benartzi

Shlomo Benartzi, the BCFG Distinguished Senior Fellow, is a behavioral economist who works on creating digital nudges that leverage technology to test and scale up interventions capable of helping millions make better financial decisions. With Nobel Laureate Richard Thaler, he pioneered the Save More Tomorrow™ (SMarT) program, a behavioral program that nudges employees to increase their savings rates gradually over time. In their original research, Benartzi and Thaler found that SMarT increased employee savings rates from 3.5 percent to 13.6 percent. The SMarT program is now offered by more than half of the large retirement plans in the U.S. and a growing number of plans in Australia and the U.K. The program has also been incorporated into the Pension Protection Act of 2006, enabling approximately 15 million Americans to boost their retirement savings.

Benzarti received his Ph.D. from Cornell University’s Johnson Graduate School of Management in 1994. He is the co-founder of the Behavioral Decision-Making Group at the Anderson School of Management, University of California, Los Angeles.

BCFG recently chatted with Shlomo about his current work and its implications for behavior change:

Could you summarize a recent project you’ve been involved with that has relevant insights for the BCFG Initiative?

Hal Hershfield, Steve Shu and I recently collaborated on a research study with Acorns, the popular robo-saving and investing app. We showed that the right framing can make a huge difference when it comes to saving decisions. In particular, we showed that asking people if they want to save $5 a day (as opposed to $150 a month) quadrupled the percentage of users signing up for recurring deposits. (It also eliminated the income savings gap, so that low-income users were just as likely to enroll as high-income users.) Furthermore, we showed that most of these new savers continued to save six months later. This demonstrates that, if you can use behavioral insights to get people on the right path, then they’ll usually stick to that path, especially if the savings is automated. We should make the right choice the easiest choice.

What’s one common obstacle people experience when trying to save more?

I’d say one of the biggest obstacle is the pull of the “here and now,” or what behavioral scientists refer to as present bias. The desire for immediate gratification and spending is a hard one to resist, especially if the alternative is saving for your distant future (which feels less salient and emotional). Save More Tomorrow, a program Nobel Laureate Richard Thaler and I developed, got around this problem by asking people if they wanted to commit saving more at some point in the near future, like 6 months from now. This meant present bias wasn’t a factor in their decisions. About 15 million American workers have increased their retirement savings using the Save More Tomorrow program.

What’s one way in which you think technology can help promote enduring behavior change when it comes to saving?

We’ve learned that traditional financial education doesn’t work, and that even several hours of education often fails to meaningfully change spending and saving behavior. However, in a recent study I conducted with Yaron Levi (now a behavioral economist at USC) we showed that digital technology could make a big difference. We set out to test the impact of just-in-time financial education using the Personal Capital mobile app. The app allowed users to get their latest account balance and spending details on their mobile devices, making the information easily accessible when they were making purchase decisions. This availability turned out to have a huge impact, with the average user decreasing their monthly spending by 15.7%. Not surprisingly, almost all of that decrease came in the form of discretionary spending, with users spending far less on items such as dining out. We speculate that the app was effective because it delivered a just-in-time form of financial education, minimizing the timing gap between the information and the decision.

Of course, this is just one example of how technology can change financial behavior. I think we’re already discovering that there are countless other forms of digital nudging that can help us save and invest, whether it’s personalized videos or better online design.

About BCFG

The Behavior Change for Good Initiative at the University of Pennsylvania is co-led by Psychology Professor Angela Duckworth and Wharton Professor Katy Milkman. BCFG unites leaders in the social sciences, medicine, computer science, and neuroscience to propel science forward on enduring behavior change.

We’re always interested in hearing about new areas to explore and potential collaborations. Contact us anytime.