Default Options: Behavioral Economics for Those Who Fail to Save

Why does our brain choose present pleasure over future happiness? Understanding this secret reveals the path to retirement preparation.

• The fundamental psychological reasons behind failing to save for retirement
• Why behavioral economics’ ’nudge’ and ‘default option’ are powerful solutions
• Key differences between successful overseas pension systems and Korea’s model

Why do we fail to save? A behavioral economics diagnosis

Within us coexist a wise ‘planner’ who plans for the future and an impulsive ‘doer’ who enjoys the present. Unfortunately, in most battles, the winner is the ‘doer.’ Behavioral economics’ default option is a powerful system designed to help the planner win this internal war. I, too, have often promised myself “starting this month for sure” on payday, only to succumb repeatedly to the ‘doer’s’ temptation of clicking the buy button for new sneakers.

This is not a matter of willpower but the result of several deeply ingrained biases in our brain.

These are psychological biases that make immediate, certain pleasure feel stronger than vague future happiness.

Present Bias: The now is more important than the future

Our brain reacts far more strongly to “100,000 won today” than “1 million won in a year.” The gravitational pull of small immediate pleasures over large future rewards is so strong it makes us chant “I’ll save starting next month.”

Loss Aversion: The pain of loss outweighs the joy of gain

People feel the pain of losing 100,000 won about twice as strongly as the joy of gaining the same amount. Transferring salary to a savings account is perceived as an immediate ’loss’ of spendable money. This immediate pain outweighs uncertain future gains, causing hesitation to save.

Status Quo Bias: The trap of “just as it is”

Ultimately, these psychological conflicts often lead to the conclusion, “Oh well, let’s just stay as we are.” Without a special trigger, we have a strong inertia to maintain the current state. The current state of ’not saving’ is like a very comfortable sofa—once you sit down, it’s very hard to get up.

The key to solving the problem: Nudges and default options

So what is the solution? Behavioral economists suggest choice architecture that leverages human irrationality instead of blaming willpower. The most powerful tools among these are nudges and default options.

• Nudge: A gentle push, like an elbow nudge, that guides behavior in a desirable direction without coercion.
• Default Option: The most powerful nudge strategy, meaning the preset choice automatically selected if no active choice is made.

Default options turn the ‘doer’s’ strongest weapons—habit and status quo bias—into allies. A classic example is the stark difference in organ donor consent rates between Germany (12%), which uses an opt-in system, and Austria (99%), which uses an opt-out system.

Successful default option cases overseas

The US, UK, and Australia have successfully applied these behavioral economics insights to their pension systems. Their core feature is the opt-out approach.

United States: Save More Tomorrow (SMarT)

In 2006, allowing companies to auto-enroll employees in 401(k) plans raised participation from under 50% to over 90%. Richard Thaler’s SMarT program further increased average savings rates from 3.5% to 11.6% within three years by automatically raising savings rates when wages increased.

United Kingdom: Mandatory auto-enrollment with NEST

Since 2012, all companies must enroll employees in the government-run NEST pension. This boosted workplace pension participation from 55% to over 78%, with withdrawal rates around 8%.

Australia: Growth-oriented MySuper

Employers contribute 11% of wages mandatorily, and if employees do not specify investment preferences, funds are automatically invested in a growth-oriented portfolio (MySuper) with 60–75% equities. This reflects the philosophy that long-term higher returns benefit workers.

What’s wrong with Korea’s default option?

In 2022, Korea introduced a default option system called ‘Pre-Designated Operation System.’ However, it faces criticism as a ‘default option in name only,’ missing the core of successful overseas models.

The fatal flaw of the Korean system is that it fails to leverage human nature’s tendency to avoid effort.

The biggest problem is that subscribers must actively choose one product from a list—an opt-in system. If they do not choose, money remains idle in cash-like assets. As a result, about 89% of total funds are concentrated in ultra-low-risk products akin to savings deposits, directly opposing the system’s intended purpose.

System comparison at a glance: Overseas vs. Korea

Self-nudge checklist for the planner

While waiting for systemic change, we can set our own ‘good defaults’ in life. What safeguards have you set for your future self?

1. ✅ Set up automatic transfers on payday: Move money to savings/investment accounts without hesitation.
2. ✅ Sign up for automatic increase services: Automatically raise savings/investment amounts when your salary increases. (Related article: How to start a pension savings fund)
3. ✅ Review your pension account portfolio: Check if your retirement funds are idling in cash-like assets and consider shifting to growth assets.
4. ✅ Open investment apps before credit card apps: Place investment apps on your phone’s home screen to redirect the ‘doer’s’ impulses to the ‘planner’s’ attention.

Conclusion: The wisdom to change the future through action

Failing to prepare for retirement is not a matter of individual willpower. Behavioral economics shows that predictable psychological biases are the cause, and smart system design offers hope to overcome them.

• Key summary

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  1. Saving failures stem from the internal battle between the ‘planner’ and the ‘doer,’ not lack of willpower.
  2. Powerful default options like automatic enrollment and automatic escalation harness our inertia beneficially.
  3. Genuine opt-out design is the key challenge to improving Korea’s pension system returns.

Open your retirement account now and set a ‘good default’ for your future self. One small action today can change your life 30 years from now.