The Beneficent and Maleficent Effects of Simplification on Retirement Savings

Abstract

Abstract Considerable research suggests that making information simpler is better. Simplification improves the efficiency of information extraction and lowers psychological frictions, leading to its popularity with policymakers and practitioners worldwide. However, it remains unclear when and how simplification can be utilized most effectively, or if there are contexts where simplification may produce unintended maleficent effects. Using two large-scale field experiments (N = 126,673), we test whether simplifying account statements helps encourage retirement savings in Mexico. We partner with two retirement firms, one ranked high in rate of returns and the other ranked lower. We find that simplifying retirement account statements improves contribution rates for consumers in the high-ranking firm but reduces contribution rates for consumers in the low-ranking firm. Five follow-up experiments provide evidence consistent with a fluency amplification account. Simplifying information improves processing fluency, making it easier to accurately recall firm rank relative to the control, which amplifies behavior bidirectionally: High-ranking (low-ranking) firm consumers more accurately recall their firm’s rank, subsequently increasing (decreasing) contributions. However, if simplification is harnessed in ways that improve processing fluency and lower perceived switching costs, then simplification can improve retirement savings for everyone either by boosting contributions or encouraging people to switch to higher performing alternatives.