With an institutional nudge in the right direction, most consumers wise up pretty quickly.
This is where government needs to step in.
“The traditional economic model is too perfectly rational,” Laibson says. “People tend to get a lot of important decisions wrong.” But Laibson, 42, says there is no reason to despair…
For instance, he says, only about half of US employees save enough for retirement, in part because the average worker waits two years to enroll in a 401(k) program. But one of Laibson’s studies showed that when new workers needed to take action to opt out of a 401(k) program — the standard model requires effort to opt in — the participation rate for new employees jumped from about 50 percent to 85 percent in a year. “A lot of big problems can be fixed by introducing defaults,” Laibson says. Given a little help, the most doltish consumer can act smarter — without even realizing it.
