Demonstrates saving behavior emerges from an internal struggle between a forward-looking planner and a myopic doer. There are descending levels of temptation according to wealth nature: current income, current assets, and future income. Self-control is a psychologically costly resource to delay gratification, specially in low-income households. As a result, households commonly rely on external commitment devices such as employer pension plans or automatic payroll deductions to enforce saving. Thus, forced saving methods increase total savings because people don’t reduce their other savings to compensate, since consumption closely follows income.
It’s an antithesis to Life-cycle theory of saving.
Posited by Hersh Shefrin and Richard Thaler in 1988.