The Nudge

An interesting behavioral economics phenomenon is the Nudge. A Nudge moves a participant into a likely better position. Fiduciaries make decisions on others’ behalf. The decisions you make for participants may vastly improveparticipants’ likelihood of retiring successfully. Your Nudges may significantly improve the participants’experience.

Nudge 1: Auto-Enroll

Auto-Enrollment is fundamentally the most influential Nudge a plan can make. It increases participation significantly. If a plan’s purpose is to assist participants in becoming self-sufficient in retirement, then participation is a must.Many planswork toward 90% participation.

Fiduciaries electing NOT to auto-enroll are Nudging their employers toward failure.

Nudge 2: Auto Escalate

Auto Escalate, where every year or anniversary or birthday, a participant’s contribution is increased without any action required from them. A prime example of a behavioral economics nudge. Many planswork towarda 10%,or larger, contribution. Depending upon a Plan’s design, the Auto Escalate Nudge might be 3% a year.


Contribution levels are indeed a fiduciary’s Nudge.

Nudge 3: Fund Lineup Simplification

As a fiduciary, you most likely control (unless you have retained an Investment Manager Fiduciary)the fund lineup presented to your participants. If it is overwhelming to you, how do you think your employees feel? When you chose your default investment option, otherwise known as QDIA (Qualified Default Investment Option), you used behavioral economics to nudge many of your participants. Many planswork toward90% participation in their target date funds. Such a Nudge helps participants with their“investment strategy.”

Fund Lineup a powerful nudge.

Nudge 4: Utilizing Insurance

A fiduciary that choose to work with an insurance company because of the “zero cost” to the employer may create an extreme participantexpense. This Nudge may mandate the employee to mix insurance and investments. The butterfly effect of mixing insurance and investments maycatastrophically impact your the participants if/when the insurance salesperson accesses’ them. This negative education uses two separate forms of behavioral economics: cognitive dissonance and loss aversion. As a fiduciary, you create cognitive dissonance among your employees as they associate insurance with investments as a positive thing. The insurance salesperson bound to be tacking on products uses loss aversion to complete their sale.

Therefore even choosing the record keeper, and accepting their fund lineup comes with its implicit nudges.


A fiduciary’s perception that one must “implement behavioral economics” is missing the point. In fact, behavioral economics comes into play with nearly every fiduciary decision. It is best to understand the implications of the Nudges you implement.