The Limits of Behavioral Finance?
It’s long been noted that inertia is a powerful force regarding behavioral finance and automatic enrollment — but it may have limits, according to a new study. Coverage of the report — titled “ Smaller than We Thought? The Effect of Automatic Savings Policies ” — focused on how job change undermines retirement savings — both because of vesting, as well as the effectiveness of automatic enrollment, and more specifically auto-escalation, since those mechanisms tend to reset with the change in employers (and payroll). Don’t get me wrong. The report states quite clearly that these automatic mechanisms provide a positive result — the authors comment only that it’s perhaps not quite as positive as most think. Their solution — give people less access to these monies before retirement, and require savings, rather than permitting an opt-out. From a pure mathematical stance, there’s little argument there — making people save and prohibiting pre-retiremen...