When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
My mantra is if you want to help people accomplish some goal, make it easy.
So, what's a nudge? A nudge is some small feature of the environment that attracts our attention and alters our behavior.
A good rule of thumb is to assume that everything matters.
The lesson from behavioral economics is that people only save if it's automatic.
There's no reason to think that markets always drive people to what's good for them.
Recall that people like to do what most people think it is right to do; recall too that people like to do what most people actually do.
Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he'd be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money - or looks at the value of his mutual funds in the newspaper - the lower his risk tolerance.
If people just put away what's left at the end of the month, that's a recipe for failure.
People worry that if they buy an annuity and then die before the policy starts to pay off, their heirs will lose out. I tell them, "What you should be more worried about is if you outlive your money, you will have to move in with your kids. Ask your kids which of these outcomes they are more worried about."
Investors must keep in mind that there's a difference between a good company and a good stock. After all, you can buy a good car but pay too much for it.
People exaggerate their own skills. they are optimistic about their prospects and overconfident about their guesses, including which managers to pick.
I'm all for empowerment and education, but the empirical evidence is that it doesn't work. That's why I say make it easy.
I think one lesson we have to learn is that there's a lot more risk than we're giving credit to, a lot more what economist calls systematic risk.
The assumption that everybody will figure out how much they have to save and then will just implement that plan is obviously preposterous.
There are cases when I can make myself better off by restricting my future choices and commit myself to a specific course of action.
I don't go by the ratings. I buy wine that tastes good. Statistically, anybody's ability to predict what will be a good wine a decade from now is limited.
Most economists, including me, agree that longevity insurance would make sense for a lot of people.
I think the people who've been the most overconfident in our business in the last decade have been the people that called themselves risk managers.
Everyone's lost a lot of money on their 401k plans. I've heard some people calling them 201k plans. So it's even more important to get people to be saving more for retirement. Behavioral economics has helped us learn a lot about how to do that.
Retirement savings is probably behavioral economists' greatest success story. It is a prototypical behavioral-economics problem because saving for retirement is cognitively hard - figuring out how much to save - and requires self-control.
The reason is they failed to learned the primary lesson we should have learned from when Long Term Capital Management went belly up ten years ago. That is, investments that seem uncorrelated can be correlated simply because we're interested in it.
I think we also have learned the lesson that we have to have better incentive structures.
So the world is much more correlated than we give credit to. And so we see more of what Nassim Taleb calls "black swan events" - rare events happen more often than they should because the world is more correlated.
Why tie to gold? Why not 1982 Bordeaux?
