There are cases when I can make myself better off by restricting my future choices and commit myself to a specific course of action.

The lesson from behavioral economics is that people only save if it's automatic.

The assumption that everybody will figure out how much they have to save and then will just implement that plan is obviously preposterous.

The reason is they failed to learned the primary lesson we should have learned from when Long Term Capital Management went belly up ten years ago. That is, investments that seem uncorrelated can be correlated simply because we're interested in it.

So, what's a nudge? A nudge is some small feature of the environment that attracts our attention and alters our behavior.

Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he'd be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money - or looks at the value of his mutual funds in the newspaper - the lower his risk tolerance.

The same with the mortgage brokers that were selling people mortgages they couldn't afford. We shouldn't pay them on each mortgage they write. They should have what they call "skin in the game," where they've got to reimburse us if the guy who sold the mortgage defaults.