Adam and Becky both recently started new jobs. Both have determined that they sh

Question

Adam and Becky both recently started new jobs. Both have determined that they should save 10% of their monthly income toward retirement. Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund. Becky's employer automatically directs 8% of the paycheck into a retirement fund, but the employee can change the percentage deducted. Behavioral economists would expect:
A) Adam to save more as he would set up a 10% automatic withdrawal while Becky would stay at the default of 8%.
B) Becky would save more. As both would tend to stay at the defaults provided by their employers.
C) them both to save 10% eventually, as both had predetermined that that was the optimal amount to save.
D) Becky to feel a greater sense of loss by seeing funds automatically withheld each month. Adam and Becky both recently started new jobs. Both have determined that they should save 10% of their monthly income toward retirement. Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund. Becky's employer automatically directs 8% of the paycheck into a retirement fund, but the employee can change the percentage deducted. Behavioral economists would expect:
A) Adam to save more as he would set up a 10% automatic withdrawal while Becky would stay at the default of 8%.
B) Becky would save more. As both would tend to stay at the defaults provided by their employers.
C) them both to save 10% eventually, as both had predetermined that that was the optimal amount to save.
D) Becky to feel a greater sense of loss by seeing funds automatically withheld each month. Adam and Becky both recently started new jobs. Both have determined that they should save 10% of their monthly income toward retirement. Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund. Becky's employer automatically directs 8% of the paycheck into a retirement fund, but the employee can change the percentage deducted. Behavioral economists would expect:
A) Adam to save more as he would set up a 10% automatic withdrawal while Becky would stay at the default of 8%.
B) Becky would save more. As both would tend to stay at the defaults provided by their employers.
C) them both to save 10% eventually, as both had predetermined that that was the optimal amount to save.
D) Becky to feel a greater sense of loss by seeing funds automatically withheld each month.

Explanation / Answer

The correct choice is D

Explanation : - Behavioural economics is a method of economic analysis that applies psychological insights into human behaviour to explain economic decision-making . Unlike traditional economic theory, Behavioural Economics does not assume that human beings always make rational economic decisions . Thus Behavioral economists would expect Becky to feel a greater sense of loss by seeing funds automatically withheld each month .

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