Treasury explains Australians to themselves in the latest tax reform report

This is the opening salvo in an Australian Treasury commissioned report Behavioural Economics and Complex Decision-Making: Implications for the Australian Tax and Transfer System:

Many aspects of observed human decision-making differ from the 'rational' behaviour assumed in economic models. For example:

1. People are much more concerned about possible losses than possible gains
2. People are inclined to stick with the status quo
3. People dislike uncertainty
4. People value fairness
5. People sharply discount the future compared to the present

For all but the simplest of decisions, people generally do not attempt to find the optimal solution, but rather apply simple decision-making strategies:

1. They stick with what they know
2. They follow others
3. They settle for something that is good enough, rather than searching for the best

The more complex the decision, the less well equipped people are to deal with it. As a result, people often make decisions which do not appear to be in their best interests:

1. They procrastinate, putting off things such as saving for retirement
2. They stick with the default option, even if it is not the best
3. If a decision is too complex they may avoid it altogether
4. People are readily confused, and prone to misleading advice

These issues tend to be particularly prevalent among the least well-off.

Full August 2009 CSIRO report here.