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Abstract
Behavioral economics has focused on the shortcomings in decision making by individuals, but some of these same shortcomings can be observed in the decision making of government. In particular, policy inertia is a characteristic of the political process of Social Security reform. The last major change to Social Security occurred in 1983 and was made to avert a crisis. Delay in reforming Social Security is costly to American workers because the longer the delay, the larger the tax increases and benefit cuts that will be required to restore solvency. The author’s proposal applies three insights from behavioral finance to behavioral public finance: the use of defaults, the “save more tomorrow” concept, and the use of salience—raising the salience of the need for reform, while lowering the salience of the reform itself.
TOPICS: Social security, legal/regulatory/public policy, in wealth management, retirement
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