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Choice overload paradox and public policy design. The case of Swedish pension system

Author

Listed:
  • Slawomir Czech

    (University of Economics in Katowice)

Abstract

In this paper we focus on an adverse effect of extensive choice widely known as ‘choice overload’. We draw on the case of Swedish funded pensions for illustration and analyze consequences of the design that allowed for maximizing the choice set. The analysis shows limitations of employing the rational choice approach to the real choice decisions biased with common psychological factors and demonstrates that government’s responsibility for the privatized pension system does not end with the design. We also emphasize the need for a decent default option, which would mitigate socially harmful results of adverse behavior effects like procrastination, status quo bias or abstaining from choice. After all, privatized pension systems still belong to a sphere of public policy.

Suggested Citation

  • Slawomir Czech, 2015. "Choice overload paradox and public policy design. The case of Swedish pension system," Working Papers 44/2015, Institute of Economic Research, revised Apr 2015.
    • Handle: RePEc:pes:wpaper:2015:no44
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    More about this item

    Keywords

    extensive choice; cognitive limitations; market failure; choice architecture; funded pensions;
    All these keywords.

    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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