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.