Admit it. We've all been there. You're in the middle of an employee education meeting on retirement plans and someone (in their twenties, no less) invariably asks, "Why should I save? Social Security will take care of me when I retire."

Your first reaction is "What!? Chances are Social Security as you know it won't even be around when it's your time to retire." But you hold it in. Experience tells you this question represents only the tip of the iceberg. If one person is asking it, a hundred are thinking it.

Yes, 401(k) plan participants ask the darnedest questions. You can't snicker at them. Your challenge is to seize them as an opportunity to rid employees of often harmful misconceptions, (see "5 Awkward 401(k) Questions Every Good Fiduciary Must Know the Answer To," FiduciaryNews.com, November 28, 2017). These straight-from-the-heart questions reveal the naïve honesty of many retirement savers.

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But that's not all.

The roots of many of these questions stem from biases uncovered by behavioral finance.

An awareness of some of these cognitive malfunctions might help both educate (and entertain) employees during those (normally boring) 401(k) education seminars. Here are some examples:

Anchoring: This is the granddaddy of them all and stems from some of the original research in behavioral finance.

It's the idea that things tend to get stuck in our minds. For example, if the market is us 20%, and your investments are up 10%, you're disappointed. That's because your mind is anchored at the 20%.

Of course, here's the lesson. If the markets are down 10% and you're up 10%, you're happy.

In both cases you're up the same amount, but your emotions are exactly the opposite. Try making a decision on that. (By the way, a physical example of this is sticking one hand in hot water and the other in cold water. Then place them both in lukewarm water. Despite both hands being placed in the same water, the hot water hand feels cold while the cold water hand feels hot. That's anchoring.)

Anchoring is a devil of a problem. It's hard to detect, hard to measure, and can lead to all kinds of problems.

Framing effect: This means looking at the same set of data and seeing two completely things, depending on the angle you're looking from. B

enartzi and Thaler showed how retirement savers misuse this in making investment selections in 401(k) plans.

Their research showed people tend to make decisions that were too conservative when looking at annual returns, but made better long-term investment decisions when looking at 10-year returns. They used the same investments, but framed the performance differently, which resulting in diametrically opposed decisions.

Confirmation Bias: We've seen this one in politics dramatically over the past year or so, but it's a regular phenomenon in the retirement investing world. It's the tendency to only search for, pay attention to, and trumpet data that supports your world view.

For example, if you're a die-hard index fund investor, you might not remember (or want to remember) how poorly index funds performed in the first decade of the new century.

Choice-supportive bias: Do you think your sweat smells sweeter than everyone else's? This is sort of like a choice-supportive bias.

You've been smitten by this bias if you tend to remember all your great decisions and forget all your bad decisions.

This false sense of confidence doesn't prevent you from making the same mistakes you've made in the past. Why haven't you learned from your own history? Because you refuse to remember that history!

Recency bias: This is one of my favorites because it's so pervasive. That makes it easier to present an example everyone readily understands.

Here's one: Who's the best actor? Most people would answer "George Clooney" or "Matthew McConaughey." But wait! What about Humphrey Bogart or James Cagney? Out of sight, out of mind, that's the lesson of the recency bias.

In 401(k) land we'll often see participants assume the market will always produce the returns it has produced in the last few years.

So, for example, if index funds have regularly beat active funds recently, it's (incorrectly) assumed this trend will extend into the future.

Nope. Investments don't work that way. History shows it. And you'd know that if you aren't a victim of choice-supportive bias.

Gambler's fallacy: This is the flip-side of recency bias. Speaking of flips, let's flip a penny. Let's flip it 19 times. All 19 times, the coin comes up heads.

Recency bias suggests the 20th toss must yield a "head," because, well, that's what the trend tells us.

On the other hand, once you find out there's only a one-in-a-million chance that a coin will land heads-up 20 times in a row, the Gambler's fallacy kicks in.

You think, "One-in-a-million is almost impossible, so that 20th toss is more likely to land tails-up." In reality, no matter what happened in any previous toss, any toss – including the 20th – has only a 50-50 chance of coming up either heads or tails.

Bandwagon effect: Perhaps the most dangerous – and most useful (but that's moving from Kahneman and Tversky's behavioral finance to Cialdini's behavioral psychology) – is cognitive bias.

The Bandwagon effect is what makes your mother say, "If all your friends jumped into the lake, would you jump in the lake, too?"

Well, yeah. The Bandwagon effect says you probably would jump into the lake with your friends.

Now, normally, that would be a bad thing, especially if it's freezing cold outside. On the other hand, if you're in the middle of a forest first, jumping in the lake might be a good thing.

You see how you can use the Bandwagon effect for good? If you can convince 401(k) plan participants everyone else is saving 20% of their salary, that might be a good bandwagon to jump on to.

For every Yin in behavioral finance there's a Yang. If you can master the art of this jiu-jitsu, you might be able to turn those lemon-ish questions into lemonade. You see, your mother also said there's no such thing as a stupid question. And she was right.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).