Monday, February 25, 2008

Nudge! Nudge! How to Get Americans to Save.

In the New Yorker there is a good article this week on behavioral economics one of economic's newest fields. What makes the field different is it basically assumes people are irrational. For example even though people say and know they do not save enough in their 401k they don’t change their savings rate, because they keep meaning to go to their benefits office, but do not get around to it. One way to fix this problem is to automatically enroll people in a 401k and have their default option be targeted retirement date index funds. If someone wants to change then they go down to the benefits office and opt out. That might just be the nudge they need.

The Federal Government seems to have figured this outt as my wife’s retirement savings provider said the new default option will be target date retirement funds as opposed to a money market.

Austria has taken this nudge in another direction. Now everyone is assumed to be an organ donor until they state otherwise, greatly increasing the amount of donations.

1 comment:

Jason Dittle said...
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