This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Social Security Bulletin, Vol. 70, No. 4, 2010 1 Introduction Traditional economic theory posits that people make decisions by maximizing a utility function in which all of the relevant constraints and preferences are included and weighed appropriately (Simon 1959). Traditional theory assumes that individuals have full information and are able to process this information, that individuals are rational decision makers, and that individuals preferences are well-deFned and constant over time (Becker 1962; Thaler 1990). Behavioral economists and decision-making researchers ques- tion these assumptions, however, and are interested in how people make decisions in the face of incomplete information, limited cognitive resources, and the decision biases to which individuals often fall prey (for example, Thaler 1990, 1999; Tversky and Kahneman 1974). Empirical Fndings in the areas of judgment and decision making (JDM) and behavioral economics depart from the notion of man as economically ratio- nal, illustrating instead that people often act in ways that are economically suboptimal. This article outlines Fndings from the JDM and behavioral-economics literatures that focus on elements of the retirement savings decision. The reality facing todays workersthat Social Security will not, nor was it intended to, constitute the entirety of U.S. workers retirement income (DeWitt 1996)has highlighted the importance of personal Fnancial responsibility. The growing number of employers offering deFned contribution retirement plans such as 401(k)s in addition to, or in lieu of, traditional deFned beneFt or pension plans (EBRI 2007) further underscores the role of the individual in planning for his or her future Fnancial well-being. Unfortunately, workers face a multitude of problems Selected Abbreviations EBRI Employee BeneFts Research Institute IRA individual retirement account JDM judgment and decision making RSP Retirement Security Project SSA Social Security Administration * The author is with the OfFce of Retirement Policy, OfFce of Retirement and Disability Policy, Social Security Administration. Note: Contents of this publication are not copyrighted; any items may be reprinted, but citation of the Social Security Bulletin as the source is requested. To view the Bulletin online, visit our Web site at http://www.socialsecurity.gov/policy. The Fndings and conclusions presented in the Bulletin are those of the authors and do not necessarily represent the views of the Social Security Administration. T he R ole of B ehavioRal e conomics and B ehavioRal d ecision m aking in a meRicans R eTiRemenT s avings d ecisions by Melissa A. Z. Knoll* Traditional economic theory posits that people make decisions by maximizing a utility function in which all of the relevant constraints and preferences are included and weighed appropriately. Behavioral economists and decision-making researchers, however, are interested in how people make decisions in the face of incomplete...
View Full Document
- Spring '11
- The American