Retirement savings from the behavioural perspective

Abstract

The aim of this article is to point at main implications stemming from behavioural economics for retirement savings. The author presents main models of choice relevant to the intertemporal choice developed by economical psychologists (prospect theory, hyperbolic discount function, system of mental accounts). These models provide a basis for a comparison of behavioural models of choice with fundamental assumptions of the rational representative agent, essential for consumption smoothing models. There is room for doubt whether real individuals are rational, patient and able enough to maintain self-control in order to fulfil the requirements of consumption smoothing models. This comparison allows the author to derive some strict implications for the governmental policy directed to increase retirement savings such as social pensions or optional retirement savings programs which can be perceived as self-commitment devices helpful as devices for maintaining people's self-control.