SmartMoney Blogs

Real-Time Advice
Our real-time advice on how market shifts and news impact you and your money

Nobel Prize-Winning 401(k) Advice

The new 401(k) fee-disclosure rules the Labor Department approved last week don’t address the bigger problem with the retirement plans, says psychologist Daniel Kahneman: They’re too much like cookie jars.

Getty Images

It’s not surprising 401(k)s mint so few millionaires, given that money stashed away for the future can so easily be cashed out in the present, he says. Kahneman, whose investigations into the biases and mental hiccups that make humans lousy decision makers won him the Nobel Prize, says these pots of cash are just too much a temptation.

“I have a sweet tooth,” the author of Thinking Fast and Slow tells “When I have cookies at home, I consume them — because they are there.” Reaching into one’s nest egg can be just as irresistible, he says. Nearly a quarter of 401(k) savers allowed to take loans do so at any given time, according to one recent study — and over a seven-year period that rate increases to 50%. “It’s clear that in the conflict between the present and the future, the present tends to win,” Kahneman says. “The ease with which the 401(k) savings can be withdrawn when a financial emergency arises is clearly disastrous for people. Given the choice between cashing out your 401(k) and borrowing from relatives, most feel an obligation to go with the 401(k).”

As a general rule, investors would be better off with their hands tied and eyes close, he says. “With respect to my own investment policy, I have a very simple rule: don’t look,” he says. “I don’t look how well my investments are doing so I am not tempted to make quick decisions about it.” Freedom, he contends, can be overrated.

Kahneman’s work in behavioral economics highlighted our tendency to stumble when numbers are involved. The interplay between our automatic thinking and our more reflective analysis, causes us to stumble on statistics and all too often make the wrong call.

Our aversion to loss is a far more powerful force in decision making than the desire to gain, Kahneman stresses. So when decisions do need to be made, they shouldn’t be made quickly. “When it’s important, slow down. Take as much time as possible, pre-commit to a plan and stick with it.”


We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (0)

    • Be the first to leave a comment on this blog.

About Real-Time Advice

  • How breaking news — in the markets, Washington, and around the world — affects you and your money. Have a question about how current events may change your financial future? Email us at