Apply it! Exercises

Behavioral Economics
Dan Ariely
1. Perhaps the most successful government intervention to increase savings in the United States and in other countries has been the introduction of payroll deduction plans, whereby a portion of an employee’s salary goes directly into an investment account. How does mental accounting explain why people find it so easy to save through such plans and so difficult to save otherwise?
2. Loss aversion suggests that the way in which economic decisions are framed can make quite a bit of difference. With that research in mind, provide some suggestions for what a person might call his or her savings account, and how he or she should talk about the payroll deductions.

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