Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

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This paper reports results from a field experiment in Afghanistan designed to identify the reasons why defaults affect behavior. We have several reasons for studying defaults in Afghanistan. First, most of the existing evidence on default savings is from rich countries. Less is known about the potential for defaults to affect savings in poor countries, where most of the world’s population resides, and where the eco- nomic benefits of increasing savings may be higher. Related, in developed countries, it is frequently the poorest and least financially sophisticated who respond most strongly to defaults; this suggests defaults might be particularly effective in poor countries. Finally, while the lack of financial infrastructure has historically limited the relevance of default savings products in poor countries, the recent proliferation of mobile money, which already has more than one-half billion registered accounts worldwide, promises to provide billions of “unbanked” individuals with a financial infrastructure that could support the use of defaults.

October 01, 2018