When Harm Helps: Building Choice Architecture for Investors

When I was 16 years old, my parents sat me down and said: We know you’re at the age when you might start drinking. We are not encouraging you to drink—it will likely hurt your brain development and put you in danger of car crashes and premature pregnancy—but we know saying “don’t drink” probably won’t be effective. Instead, we’re saying, “Please drink safely, and if you’re going to drink, do it in our house.” My parents realized that hardline prohibition was ineffective and instead tried to realistically minimize my potential harm from drinking. Today, as director of Behavioral Finance and Investing at Betterment, I apply this same pragmatic approach to help clients improve their financial outcomes when saving and investing. ….[READ]