So far, we have observed how to get more people to sign up to effective savings programmes, and then make sure they save more than enough. However, while this money is being saved, there is no point in just letting them sit to gather dust – inflation will batter and devalue these savings over time. This means that investment funds are necessary, but there’s a problem – very few people are experts on investing, so how will they know which fund is best for their needs?
Finally, problems arise in choosing the right fund to invest these savings in. Often there will be dozens of options to choose from, as we will see in Switzerland’s case[1], and so it may not be possible for the individual to decide by themselves. The person choosing will have to contemplate how much risk they are willing to take, the returns they expect to get, what type of assets they wish to invest in and many more complex factors that can influence the value of their savings.
After selecting whether or not they want to participate in the savings program and if they want to sign up for the ‘Save More Tomorrow’ scheme, the final decision the employee needs to make is which investment fund they want to hold their savings in. They would need to calculate the risk taken and returns they are hoping to achieve, the level of diversification of assets in the fund, the types of assets owned, whether these assets are high-yield or low-yield, long term or short term – essentially, there are too many complex factors that need to be decided before they can complete their application, allowing the cognitive bias of computational weakness to influence the outcome.
Firstly, we will explore the effect of weakness at computation on this decision. In the case of Sweden’s retirement savings scheme, with the system they implemented in the year 2000, there were 456 different investment funds to choose from. This is a staggering amount considering that the employees were expected to evaluate them and select the optimal one for their needs and goals. They were required to choose a maximum of five funds to form their portfolio, but it would be impossible to assess all of the possible options and combinations individually. They would also need to calculate how much they would need to allocate to each fund for how long, considering the average rate of return and projected gains. All of this is too much information to process individually, which can cause inertia and lead to them either failing to choose and ending up with a fund that does not suit their requirements or simply cancelling their enrolment in the programme. As we have discussed earlier, it is essential that employees are enrolled in this scheme unless they are certain they do not want to, and so this is a situation that must be avoided at all costs.
[1] Sunstein, C.R. and Thaler, R.H. (2021). Nudge: Improving decisions about health, wealth and happiness, The Final (2nd) edition. S.L.: Allen Lane. – Chapter 10: ‘Do Nudges last forever? Perhaps in Sweden’
Economics 101 
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