Saurabh Bhargava: A More Serene Path to Financial Wellbeing

Saurabh Bhargava, PhD is a professor and researcher at Carnegie Mellon University in Pittsburgh, and he joined us in the Behavioral Grooves studio during a visit to Minnesota over the holidays. Saurabh has also taught at the Booth School at the University of Chicago and worked in corporate consulting for McKinsey & Company.

His work history, and the fact that he hails from the very sensible state of Minnesota, adds credibility and practicability to his work. In recent years, much of his research has focused on examining policies and programs that shape financial and health wellness. His curiosities have ranged from how we make health insurance choices from complicated menus to the effects of emotion on political beliefs and voting.

Saurabh’ research is best summed up using his own words. His research, he says, “uses natural field experiments to better understand the systematic ways in which people’s behavior departs from what economists would think of as a rational benchmark. Then, using some of these insights to help improve how we think about the design of policies and programs that are intended to help them.”

In this conversation, Saurabh talked about findings he’s made, with his colleague Lynn Conell-Price, in how people prepare (or don’t prepare) for retirement. Planning for retirement is complex: we don’t know how long we’re going to live, we don’t exactly know how much we’re going to spend, and we don’t know how the economy will treat our savings. All are difficult – if not impossible for ordinary Jane’s and Joe’s – to estimate. Their working paper wrestles with these issues and offers findings that will help people, who have not really engaged in their retirement, to get started.

Their work tests three candidate explanations offered by Behavioral Economists as to why employees do not save sufficiently for retirement through their 401(k) plans:

Financial literacy. Because decisions about saving are made very rarely, it’s common to lack the skills required to make the most effective decisions. But like the GI Joe fallacy, knowing is not even close to being half the battle.

Complexity. Kahneman and Tversky demonstrated that the more complex the problem, the less likely people are to solve it well and decisions that require managing complex online forms could deter us from making the decision at all.

Self-Control (Procrastination). This is a biggie. Our present bias can be so strong that we’re willing to forego the pain of a few dollars less each paycheck (today) in exchange for a more comfortable future (tomorrow).

We discussed his findings and a surprising micro-behavioral intervention aimed at those who were not enrolled. Incentives cannot be offered to get people to enroll, but they can be aimed at PRE-enrolling behavior: logging in. Saurabh’s discussion of the results are terrific!

We hope you enjoy our discussion with Saurabh and would be very grateful for a positive rating on your favorite podcatcher. It goes a long way with us and our efforts to expand our audience.