Roger Lowenstein recently wrote a NYT profile of Richard Thaler and his
work on behavioral economics:

Exuberance Is Rational
February 11, 2001

"...I met Thaler two days after the election, and he was already
predicting that the country would be willing to accept Bush as the
winner, because "people have a bias toward the status quo." I asked
how "status-quo bias" affects economics, and Thaler observed that
workers save more when they are automatically enrolled in savings
programs than when they have to choose to participate by, say,
returning a form.  Standard theory holds that workers would make the
most rational decision regardless.

Savings is an area where Thaler thinks he can have a big impact. Along
with Shlomo Benartzi, a collaborator at U.C.L.A., Thaler cooked up a
plan called Save More Tomorrow. The idea is to persuade employees to
commit a big share of future salary increases to their retirement
accounts. People find it less painful to make future concessions
because pain deferred is, to an extent, pain denied. Therein lies the
logic for New Year's resolutions.  Save More Tomorrow was tried with a
Chicago company, and workers tripled their savings within a year and a
half -- an astounding result. "This is big stuff," Thaler says. He is
shopping the plan around to other employers and predicts that
eventually it could help raise the country's low savings rate.

Though Thaler, who comes across as a middling, Robert Rubin-style
Democrat, plays down the connection, such results could provide
ammunition to liberals who think government bashing has gone too
far. Since the Reagan era, a mantra for office seekers is that people
know what is best for themselves. Generally, yes; but what if not
always, and what if they err in predictable ways? For instance, Thaler
has found that the number of options on a 401(k) menu can affect the
employees' selections. Those with a choice of a stock fund and bond
fund tend to invest half in each. Those with a choice of three stock
funds and one bond fund are likely to sprinkle an equal amount of
their savings in each, and thus put 75 percent of the total in
stocks. Such behavior illustrates "framing" -- decisions being
affected by how choices are positioned. Political pollsters and
advertisers have known this for years, though economists are just
coming around...."

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