Myopia and pension reform

While the neoclassical model assumes that people have consistent time preferences, behavioural economics uses the recognition of psychological deviations to subvert the rational assumption in neo-classical time preference theory. We develop a life-cycle model to show that a mandatory pension scheme may increase welfare in a model with hyperbolic discounting where people have inconsistent time preferences. The reason of the psychological bias is considered to be that the degree of people’s impatience is decreasing over time. We integrate 1st pillar DC (defined contribution) and 2nd pillar DCpension schemes into the life-cycle model.