Itis the job of the fiduciary to stand between the temptation ofbehavioral economics and the harsh dispassion of classicaleconomics. (Photo: Shutterstock)

In the battle between behavioral economics and classical economics,this one fundamental truth always wins: If it's not there, youcan't buy it. And if there's only a few left, it'll cost youmore.

But when the shelf is full, you can't give them away. It's mostapparent with things that lack intrinsic value (like beany babiesand baseball cards), but it's sitting right there on your grocerystore shelf, too.

What is it? How can it ruin so many peoples' lives while at thesame time benefit so many other people?

It's that old classic from Econ 101 – The Law of Supply andDemand. It represents the stark cold brick wall of reality thatconsumer behavior incessantly flails against.

But it's one thing if you plunk down (and ultimately lose) acouple hundred on that “sure thing” beanie baby. It's quite anotherif following the crowd ends up costing you hundreds of thousands ofdollars in retirement savings.

It's hard-wired into our frail human psyche to act on instinct,not reason. Retirement savers who fail to demonstrate thediscipline to control this natural instinct can hurt themselves andthose around them (see, “The Shocking Truth of Supply and Demand in theMarkets and the Retirement Saver's Best Interest,”FiduciaryNews.com, March 6, 2018).

It is the job of the fiduciary to stand between the temptation ofbehavioral economics and the harsh dispassion of classicaleconomics.

Emotion may win in the moment, but reason rules in the longrun.

Think about those beanie babies. At the height of the craze,people really did make money buying and selling beanie babies.Eventually, though, the desire faded and the proverbial last manstanding was left hold the bag of plush toys with nary a buyer insight.

Think this applies only to fads? Think again.

Think about the attitudes of real estate buyers in the early2000s. There wasn't a home in Florida that couldn't be flipped fortwo, three, even four times the original buying price. Until thebuying stopped. Sitting atop its “sure thing” wall, real estate hada great fall. All the realty agents, all the contractors, all themortgage lenders couldn't put real estate back together again.

There's only one sure thing about any industry, any asset class,any market: Things go up and things go down. The rational man (andwoman) knows this. However, no matter how efficient we are asindividuals, as a collective hoard the only thing we're efficientat is inefficiency.

There is a certain allure (and societal truth) to the concept of“the madness of crowds.” Joining all the lemmings isn't justenticing, it simply makes us feel so good. We're part of a team,and we all enjoy being part of a team.

Retirement savers need more than a team. They need a coach. Inall the hubbub about the fiduciary rule, it seems too many haveforgotten the roots of “fiduciary.” Because what's measurable isitself enticing, we've focused too much on numbers – thequantitative aspect of fiduciary. But fiduciary has a qualitativeaspect, too.

We get our concept of fiduciary from the traditional role playedby a trust officer. That role, so brilliantly portrayed by GeorgeCoulouris as the bank officer who was the legal guardian to CharlesFoster Kane in Citizen Kane, goes far beyond money and numbers.It's about teaching the right thing.

Note, I didn't say it's about “doing” the right thing. Thefiduciary must do the right thing, but the fiduciary can't preventa beneficiary from not doing the right thing (“I think it hassomething to do with free will” [bonus points if you know whatmovie this quote is from]). The fiduciary, then, acts like a coach,guiding and directing the beneficiary towards the right thing.

So, yes, the fiduciary must study classical economics tounderstand how the market works.

But the fiduciary must also study behavioral economics tounderstand how the mind works. In this way, the fiduciary isprepared to help retirement savers make better decisions – whetherit be in their retirement plan or at their neighborhood grocerystore.