Title

Individual and Collective Rationalization of Imperfect Choices regarding Savings Essay

Document Type

Article

Abstract

In this Essay I review six behavioral challenges to optimal savings at the individual and collective level: narve myopia, sophisticated myopia, procrastination, regret aversion, inattentiveness, and the "multiple selves" problem. I place these issues in context to Daniel Shaviro's Multiple Myopias, Multiple Selves, and the Under-Saving Problem, found in this Issue. Linking the legal-philosophical and economic arguments further, I offer examples of sequential processing: sensing, cognition, and action as a path to behavior. Sequential processing is first described in the context of imminent danger frames, and then within the context of less urgent risks, employing straightforward economic modeling of hyperbolic discounting functions, which helps us to understand how present-bias phenomena play out to thwart optimal sequential processing over longer time frames on the individual level. I offer a simple example which generates simple savings/spending errors and then show how simple heuristics can compensate for these errors. Moving from the individual to the collective level, it appears that the first two sequential processing steps (sensing and cognition) are not as big a challenge to rational resource management-rather, it appears that the final step (action) is the bigger challenge in many modern societies.

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