IAI Actuarial Core Principles · Business Economics · Consumer demand and behaviour
Which feature of behavioural economics most clearly departs from the standard assumption of rational choice in saving for retirement?
Present bias is the departure. People overweight immediate rewards compared with future ones, so they save less for retirement than their own long-term plans imply. Standard rational choice assumes consistent preferences over time, which this behaviour contradicts.
- APresent bias, leading people to under-save despite stated long-term goalsCorrect
- BMaximising lifetime utility with consistent preferences
- CUsing all available information without cost
- DChoosing the cheapest product always
- Responding to price changes by moving along the demand curve
Explanation
Present bias means people overweight immediate consumption relative to future benefit, producing time-inconsistent choices such as under-saving. The other options describe rational-choice behaviour.
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