Nudges Aren’t Enough for Problems Like Retirement Savings

Why don’t Americans save more for old age? Even when their employers promise to match their savings, workers often fail to salt away their earnings for the future, inexplicably leaving money on the table.

Psychology has offered an answer: procrastination. And it has suggested a cure: rather than giving workers the choice to sign up for a 401(k), sign them up automatically and give them the choice to opt out.

The switch has led to a sharp increase in workers’ participation in retirement savings plans. It is perhaps the most successful contribution of so-called behavioral economics to public policy.

Yet, though lauded by policy makers as a powerful new tool in the policy kit, the approach poses a risk, too. It fosters a belief that tweaks based on an understanding of people’s psychology could lead to a vastly improved society at little or no cost to taxpayers.

– The New York Times

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