The defective telescope: three retirement planning mistakes even experts make
- TEBI
- Oct 6
- 9 min read
Nobel laureate Richard Thaler has spent 40 years studying how intelligent people make predictably irrational choices. In a new interview, he reveals three costly errors that rarely feature in behavioural finance discussions, and yet determine whether you'll spend your 60s unnecessarily anxious or die with wealth you never used. Even more striking: these mistakes persist among people who know better.
Here's the paradox keeping UK financial planners awake: their clients are simultaneously terrified of running out whilst statistically likely to die with substantial unspent wealth. They scrimp through their sixties, then bequeath untouched ISAs to children who didn't need them. The economist Arthur Pigou called this temporal distortion our "defective telescope" — the gap between today and tomorrow looms larger than any two future days a year apart. What's remarkable isn't that this happens. It's that it persists even among people who know better. Nobel Prize winners devote careers to studying these errors precisely because they resist correction.
What behavioural finance doesn't discuss enough
When Richard Thaler sat down with happiness researcher Dr Laurie Santos for The Happiness Lab podcast, he wasn't rehashing the behavioural finance canon. Loss aversion and confirmation bias are now mainstream enough that even robo-advisers mention them in marketing copy. Instead, Thaler and co-author Alex Imas were discussing 40 years of replication research from The Winner's Curse, now republished with massive real-world datasets. "The findings are really robust," Thaler confirmed. "Everything replicates."
"The findings are really robust. Everything replicates." — Richard Thaler on decades of consistency in behavioural research
But here's what struck me: three costly errors that rarely feature in behavioural finance discussions, yet determine whether you spend your sixties unnecessarily anxious or your final years watching unused wealth compound for distant heirs. These aren't abstract laboratory curiosities. They're retirement planning mistakes that cost real money and real quality of life, even among investors who've learned to resist obvious biases.
Mistake one: the defective telescope screws you twice
"The idea is that the difference between today and tomorrow seems bigger than the difference between two days apart in a year," Thaler explained, summarising Pigou's insight. We grasp this when discussing under-saving — retirement feels distant, so present consumption wins. But the telescope distorts both ways. You under-save because retirement is far off. Then you underspend in retirement because today's needs feel urgent whilst tomorrow remains theoretical.
Research by Devin Pope and colleagues captured this brilliantly. They tracked convertible purchases against weather patterns. On sunny days in Minnesota — that brief window when a convertible makes sense — purchases spike. Buyers imagine themselves with wind in their hair, forgetting they're committing to a vehicle they'll use topless perhaps 20 days yearly. "When it's sunny, you kind of imagine yourself wind flowing through your hair driving down the highway," Imas noted, "and it's really hard for you to imagine, 'Wait, it's going to snow tomorrow probably.'"
Investors make identical mistakes. They load up on growth stocks after bull runs, imagining momentum continuing indefinitely. They flee to bonds after crashes, unable to imagine markets recovering. They're buying convertibles on the one sunny day.
But temporal myopia has an evil twin: temporal hyperopia. Thaler's former student Suzanne Shu illustrated this with what's become known as Suzanne's tomato. "You have two tomatoes sitting on your kitchen counter," Thaler explained, "and one is perfect. It's like God's tomato and one is two days past. Which one do you eat tonight?" Most people eat the deteriorating tomato, preserving the perfect one for some undefined special occasion. "If you wait till tomorrow, Suzanne's tomato is going to be not so good, too," Thaler noted. You never actually eat it.
Retirement planning is littered with Suzanne's tomatoes. Investors hoard 100,000 frequent flyer miles for trips they never book. They save expensive wine for special dinners that never quite materialise, then open bottles years later to find them turned. They maintain "emergency only" ISA pots whilst scrimping on experiences they could easily afford. George Loewenstein's research on "anticipatory utility" explains why: we derive pleasure from imagining that perfect future moment, which lets us keep imagining rather than actually living it.
The debiasing tool? Ask yourself: would I commit to this today? If you wouldn't accept that December meeting invitation for this afternoon, don't book it. If you wouldn't spend £500 today on theatre tickets, don't save them for "someday." Research by Alex Imas shows that simply imposing waiting periods — forcing yourself to imagine a future calm state before committing — dramatically improves decision quality. A good financial planner can run sustainable drawdown scenarios showing you can spend more than you think. The risk isn't running out. It's never living the life your wealth could buy.
Mistake two: the winner's curse — when access means danger
"Imagine you go into a bar with a jar of coins," Imas suggested in the podcast. "Whoever bids the most for this jar gets the jar and all the money that's in the jar. What's the winner's curse?" Thaler answered: "The person who wins the jar will end up losing money in the sense that their bid is going to be higher than the amount of money that's in the jar."
This isn't a pub trick. The winner's curse was discovered by petroleum engineers at Arco analysing their success rate bidding for oil leases in the Gulf of Mexico. "Every time they won one of these auctions, there was less oil there than their engineers had predicted," Thaler recounted. The insight was devastating: winning meant their engineers had been most optimistic — which is to say, most wrong.
The counter-intuitive solution? "The more bidders there are, the less you should bid," Thaler explained. "Now, that is really counterintuitive advice." It runs against every competitive instinct. Surely more interest signals more value? No. More interest signals that if you win, you've almost certainly overbid.
“The more bidders there are, the less you should bid. Now, that is really counterintuitive advice.” — Richard Thaler on the winner's curse
Investors face winner's curse situations constantly, though they rarely recognise them. When you can easily get IPO allocations, that's often because institutional investors passed. When a "hot" active fund still accepts new money, consider why—managers with genuine edge tend to close to new investors to protect returns. When retail investors suddenly gain access to alternative investments, ask why now. Often it's because sophisticated institutions are reducing exposure, and fund sponsors need new capital from investors with less bargaining power.
The 2024 push to include private equity in workplace pensions illustrates this perfectly. When was retail access expanded to illiquid alternatives? After more than a decade of institutional money flooding in, driving down prospective returns. You're not getting opportunity. You're providing exit liquidity.
A behavioural-savvy adviser offers pattern recognition here. They've seen enough "opportunities" to spot when you're winning an auction you shouldn't have entered. They can implement pre-commitment rules — written investment policies preventing you from chasing whatever's recently performed well. The value isn't stock-picking. It's keeping you out of bidding wars you're going to lose.
Mistake three: your brain's imaginary bank accounts
"A dollar is a dollar," Imas explained, describing the economic principle of fungibility. "It doesn't matter how I got the dollar, it'll buy you the same thing. So, you should spend it the same way regardless of how you got it." Except we don't.
Research by Jessie Shapiro and Justine Hastings during the 2008 financial crisis revealed mental accounting's absurdity in sharp relief. When petrol prices fell 50%, what did drivers do with their windfall? "They spend some of it very stupidly on better gas," Thaler observed. Rather than pocketing the savings, they upgraded to premium fuel. "That will do exactly no good," Thaler continued. "The car won't appreciate it. Go buy a better bottle of olive oil."
The psychology runs deep. In a famous video clip, Dustin Hoffman tells a story about visiting Gene Hackman's flat when they were struggling actors. Hoffman needed to borrow money.
Hackman pointed to jars in the kitchen filled with cash. Why borrow when you have jars full of money? "Yeah, but there's no money in the food jar," Hoffman replied. That's mental accounting—treating identical pounds differently based on arbitrary categories we've created.
Investors do this constantly. Market gains get reinvested aggressively whilst original principal gets preserved anxiously, even though a pound of profit spends identically to a pound of contribution. Bonuses get allocated to "fun money" and wasted on depreciating assets, whilst salary gets saved prudently. An inheritance gets treated with reverence and left to compound untouched, whilst equivalent wealth accumulated from employment gets spent.
But mental accounting isn't purely destructive. Thaler and Shlomo Benartzi's Save More Tomorrow programme harnessed it brilliantly. They asked workers to commit future pay rises to retirement savings. "That's combining two of the things," Thaler explained. "First of all, it's tomorrow, right? So sure. And I'm going to have more money. So I'll take some of that new money and I'll save that." The programme tripled savings rates. UK workplace pension auto-enrolment achieved similar success by treating opt-out as the friction point rather than opt-in.
The strategic use? Separate accounts can prevent you raiding retirement funds for house deposits. But avoid the petrol windfall trap — bonus and inheritance remain money, not Monopoly currency to spend frivolously. A financial planner can design account architecture that uses mental accounting strategically whilst steering you away from premium-petrol stupidity.
How to avoid retirement planning mistakes
All three mistakes share a common feature: you cannot accurately imagine different versions of yourself. Future you remains invisible to present you. Calm you evaporates when markets convulse. Rational you disappears when everyone around you is bidding aggressively for the shiny new thing. "Even the intelligent investor," Benjamin Graham observed, "is likely to need considerable willpower to keep from following the crowd."
This is why behavioural coaching represents core adviser value, not ancillary benefit. The work isn't selecting the marginally superior fund — markets are too efficient for that to matter much over time. The work is designing decision architecture: systematic rebalancing schedules, rules-based drawdown strategies, waiting periods built into processes that protect you when your telescope malfunctions.
This matters especially approaching retirement. The stakes are highest, the decisions most complex, the emotions strongest. You're deciding whether to annuitise or drawdown, crystallising decades of contributions into income streams, potentially triggering irreversible tax consequences. Your defective telescope is pointing you simultaneously toward excessive caution (underspending on lifestyle) and excessive exposure (fearing portfolio depletion more than missing your one chance to watch your grandchildren grow up).
If you're navigating these decisions, consider speaking with an adviser who grasps behavioural pitfalls as well as portfolio theory. TEBI's Find an Adviser service can connect you with evidence-based planners who focus less on beating markets and more on protecting you from yourself.
The real risk
"For most investors, the real risk isn’t running out of money. It’s never living the life their wealth could buy.”
Arthur Pigou's telescope metaphor endures because it captures something profound: our perception of time distorts decisions at every stage. We undersave, then underspend. We overbid when others bid, even though more competition should trigger caution. We treat identical pounds differently based on arbitrary mental categories, squandering petrol windfalls on premium fuel whilst hoarding ISAs we never touch.
Richard Thaler has devoted his career to cataloguing how intelligent people make predictably irrational choices — not from ignorance but from being human. After 40 years of replication, the findings remain robust. These errors persist even among people who understand them intellectually.
For most investors, the real risk isn't running out of money. It's never living the life their wealth could buy, dying with Suzanne's tomato still sitting on the counter. As Thaler's work demonstrates, doing less — and planning better — almost always beats doing more. The first step is recognising your telescope needs recalibrating. The second is finding someone qualified to help adjust the lens.
Resources
Benartzi, S., & Thaler, R. H. (2004). Save More Tomorrow™: Using behavioral economics to increase employee saving. Journal of Political Economy, 112(S1), S164-S187.
Hastings, J. S., & Shapiro, J. M. (2013). Fungibility and consumer choice: Evidence from commodity price shocks. The Quarterly Journal of Economics, 128(4), 1449-1498.
Imas, A. (2016). The realization effect: Risk-taking after realized versus paper losses. American Economic Review, 106(8), 2086-2109.
Loewenstein, G. (1987). Anticipation and the valuation of delayed consumption. The Economic Journal, 97(387), 666-684.
Pigou, A. C. (1920). The economics of welfare. Macmillan and Company.
Pope, D. G., & Schweitzer, M. E. (2011). Is Tiger Woods loss averse? Persistent bias in the face of experience, competition, and high stakes. American Economic Review, 101(1), 129-157.
Santos, L. (Host). (2025, January). The Happiness Lab [Audio podcast episode]. In Richard Thaler on The Winner's Curse.
Shu, S. B., & Gneezy, A. (2010). Procrastination of enjoyable experiences. Journal of Marketing Research, 47(5), 933-944.
Thaler, R. H. (1988). Anomalies: The winner's curse. Journal of Economic Perspectives, 2(1), 191-202.
Thaler, R. H., & Imas, A. (2025). The winner's curse: Paradoxes and anomalies of economic life (Revised edition). Princeton University Press.
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