Behavioral Economics

Paper Summary:

The paper discusses the use of behavior economics as it relates to savings rates and participation in 401(k) programs. The paper discusses how individuals do not make highly informed, logical and rational decisions to maximize their own financial well-being. The paper evaluates research studies that show how companies can help employees to think realistically and rationally about long-term savings.

Outline:
Abstract
Introduction
Analysis of Behavioral Economics Strategies for Increasing Savings Rates
Conclusion

From the Paper:

"It has now become common knowledge that the savings rates in many of the world's most developed nations is incredibly low given the wealth. This is the case in the U.S. where the savings rate, which has hovered in the negative to 1% range (Steindel, 3). The low savings rates are based mainly on misconceptions of just how much is needed for retiring at or near the current standard of living for early Baby Boomers, or those workers born between 1946 and 1954, and late baby Boomers, those workers born between 1955 and 1964. These misconceptions and their effects on personal savings are most measurable in terms of 401(k) participation. Using the principles of behavioral economics, it's possible to not only evaluate and analyze this situation but also be prescriptive in defining a potential series of solutions."

Sample of Sources Used:

• John Malcolm Dowling, Yap Chin Fang. "Modern Developments in Behavioral Economics." The Singapore Economic Review 53.1 (2008): 175. ABI/INFORM Global. ProQuest.3 Jul. 2008
• Robert Frank. "Lessons from Behavioral Economics" Challenge 51.3 (2008): 80. ABI/INFORM Global. ProQuest. 22 June 2008
• Drew Fudenberg. "Advancing Beyond Advances in Behavioral Economics. " Journal of Economic Literature 44.3 (2006): 2. ABI/INFORM Global. ProQuest.1 Jul. 2008
• Jon E. Hilsenrath. "Economics Professor's Retirement Project Puts Future Pay Raises Into Savings Plan. " Wall Street Journal [New York, N.Y.] 11 Jan. 2002, Eastern edition: A2. ABI/INFORM Global. ProQuest. 7 Jul. 2008
• Jose A Ordaz. "Advances in Economics and Econometrics: Theory and Applications, Ninth World Congress, Vol. II. " Technometrics 49.4 (2007): 499-500. ABI/INFORM Global. ProQuest.5 Jul. 2008

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