It is helpful to recall some of the more typical biases with which most decision-makers are likely to be infected before describing how some appreciation of behavioural finance might improve the practice of retirement planning.

Present Bias. People naturally orient themselves more toward short-term pleasures than toward long-run rewards. This can cause people to save too little for retirement because current expenses are served above future needs.

Over-confidence: Overestimation of one's ability to control investments or predict the movements of the market may lead to some quite adventurous decisions or inadequately diversified portfolios.

Loss Aversion: There is more fear of losing than desire for gains. This means that very conservative investment strategies will be followed, which may not grow up to a high level that will be needed by the time retirement comes around, which is relatively easier.

Herd Mentality: There are many investors who follow trends or imitate the action without understanding the reasoning behind the decision. They may buy or sell when others do so at wrong times, based on hype in the market. Read More