“Much standard economics research is based on the ‘homo economicus’ decision-maker. This is an entirely rational being. An unbiased, unemotional, non-psychological maximizer of the expected usefulness of things and events. Furthermore, this perfect decision-maker is far-sighted, and has complete self-control.
“If that seems instinctively problematic, then you’ll be pleased to know that behavioral economics research instead recognizes that real-world ‘homo sapiens’ decision-makers are not fully rational, are biased, are emotional satisfiers. Furthermore, such decision-makers are myopic, and lack self-control.
“For a long time though, policy-makers have based policy on that ‘homo economicus’ model, not least in the world of financial decision-making, such as investing, saving and pensions. On this basis, there has been a move to give more financial responsibility to individuals.
“In the world of pensions, this has meant moving from defined benefit to defined contribution schemes.”