Today we talked about Thaler and Sunstein’s specific proposals for libertarian paternalist nudges.
It’s December 20 now and, to be honest, I don’t remember exactly what we said. Here’s what I’ve got.
Someone (probably me) must have been a little cranky about calling some of these proposals “paternalism.” Nudges aimed at getting me to donate an organ or reduce my carbon footprint may well be good things. But they aren’t for my good. It may be great to give someone my kidney after I’m dead, but it isn’t good for me. I’m dead, after all. So getting me to do that isn’t a case of paternalism, in my opinion.
Cyrus pushed back by saying that getting me to do what I want, namely, donating my organs, can be good for me even after I am dead. I’m getting what I wanted, after all. Just as it would be bad for me if my will is ignored, it could be good for me if something happened after my death. I’m still feeling cranky about it, but I have to conceded that he has a pretty good point.
Prof. Brown added that solving collective action problems could be construed as paternalistic on similar grounds.
Finally, Peter proposed “libertarian collectivism,” as a label that is, perhaps, more apt for what Thaler and Sunstein are really doing. I like it!
I am posting this even though retirement savings did not really come up in our discussion. It’s probably the most important thing I have to say. You can put what you need to know about retirement savings on an index card. You don’t need a choice architect to get it right. The only thing you need is to be sure to check all the right boxes when you get a job.
This card comes from Harold Pollack, another professor at the University of Chicago. He summarized what he learned from talking with a financial planner on this card.
Basically, the recommendation is to avoid paying the government by maximizing your contributions to pre-tax retirement plans and avoid paying financial services companies by avoiding actively managed funds.
What are “actively managed funds?” These are funds whose managers try to beat the market. They are contrasted with passively managed funds, also known as index funds. The managers of index funds try to match an index of some financial asset like stocks or bonds. Since that is a lot easier to do, their fees are significantly lower. Research shows that index funds do much better than actively managed ones. Basically, it’s unlikely that any actively managed fund will beat the market over the long run but the fund manager’s fees will certainly add up.
Bookmark this page and come back to it when you get your first job.