“Danger strikes when foolish humans are left in charge of their financial futures” – The Conversation

Happy go luckyWorth a gamble? Pensioners are not as risk averse as we might think. James Broad, CC BY-ND

“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.

Benefits Trap

“In the world of pensions, this has meant moving from defined benefit to defined contribution schemes.”

Continue reading this Conversation article in its entirety, click here.

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