• Final Mile

Back to the future

Obama has spoken again. This time, its about new legislation to outline retirement initiatives. Meanwhile, what comes across as more alarming is the current state of savings in America.

“The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased,” “Half of America’s work force doesn’t have access to a retirement plan at work. And fewer than 10 percent of those without workplace retirement plans have one of their own.”

At this rate, it is crucial to kickstart a more secure future for US citizens, and Obama is taking a right step forward in that direction.

Daniel Gilbert, Harvard College Professor of Psychology at Harvard University, explains this phenomenon on his blog – the brain wiring that allows us to respond to clear and present threat (as in ducking to avert danger) has evolved to a tried-and-tested level over many millions of years, but our ability to respond to threats that loom in an unseen future is still in beta testing. It’s only a few million years ago that our mammalian brain learned how to predict the timing and location of dangers before they actually happened.

As Dan puts it, “we haven’t quite gotten the knack of treating the future like the present it will soon become…”

And Obama knows more than that. His changes, including automatic-enrollment 401K plans, Tax Refund savings bonds and contribution of unused vacation time/overtime money to retirement accounts is hinged heavily on understanding the irrationality of the human brain, and how it can be influenced to bring about desired change in behaviour.

With all of these initiatives, Obama is making Americans realize the power of assigning a larger value to their future investments, because of the amount of perceived effort that goes into creating it. An example of this would be the comparison of $100 earned, and $100 found. If someone finds $100 they might go spend it on a whim, but if that $100 is part of their paycheck, they are not going to waste it.

In 2007, when George Bush gave out a $600 stimulus check to every taxpayer, what he only did was make the average family increase spending by 3.5% on merchandise, food and drug items. Not surprisingly enough, it also “boosted” the adult entertainment industry.

Not just Americans, we as a human race, hardly worry about our future. Many people are living in the present with no coherent plan for what’s to come. Righfully, Obama is taking it upon himself to correct that behaviour, at least in America.

#Irrationality #obama #psychology #heuristics #behaviouraleconomics

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