The False Dichotomy In Retirement Planning Research

Interesting retirement planning “game” of sorts from the Center for Retirement Research at Boston College.

The problem I have with games like this, where they try to encourage “rational” behavior, is that what is rational to them is NOT rational to me.

For instance, they give you choice of a piece of chocolate cake or a fruit salad. I chose the chocolate cake and got slapped down by an irrational decision because chocolate cake is not healthy. I should have delayed my gratification by choosing the fruit salad first and the chocolate cake later.

But this is a false dichotomy. In being forced to choose I am going to choose the one which gives me the most pleasure, the chocolate cake. That is a COMPLETELY rational behavior. But they don’t allow a third option, not to choose, which is also rational.

And this is the problem with economics, generally speaking. They want SOOOO hard to be a hard science, like there are definitive answers to how human beings behave. But there are not. A rational decision to YOU maybe completely irrational to me.

Another example, Would you accept $2 today or $4 next year? (Again, going after the issue of delayed gratification.) Well, if I’m a few miles from home and about to run out of gas, I’ll take the $2 today as opposed to the $4 next year.

Again, that IS a rational decision. But economists have a hard time seeing the forest for the trees. So, focused on the immediate they can not see what’s going on around them…i.e., people living their day to day lives.

People conducting their daily lives can not be examined in a vacuum. There are ALWAYS extenuating circumstances. And the choices people make when those extenuating circumstances are considered opens up a whole different perspective when it comes to retirement planning. A perspective that simply can’t be “solved” with economic modeling.

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