There is a version of this magic market argument that I call the invisible hand wave. It goes something like this. “Yes, it is true that my spouse and my students and members of Congress don’t understand anything about economics, but when they have to interact with markets. ...” It is at this point that the hand waving comes in. Words and phrases such as high stakes, learning and arbitrage are thrown around to suggest some of the ways that markets can do their magic, but it is my claim that no one has ever finished making the argument with both hands remaining still.

Hand waving is required because there is nothing in the workings of markets that turns otherwise normal human beings into Econs. For example, if you choose the wrong career, select the wrong mortgage or fail to save for retirement, markets do not correct those failings. In fact, quite the opposite often happens. It is much easier to make money by catering to consumers’ biases than by trying to correct them.

Perhaps because of undue acceptance of invisible-hand-wave arguments, economists have been ignoring supposedly irrelevant factors, comforted by the knowledge that in markets these factors just wouldn’t matter. Alas, both the field of economics and society are much worse for it. Supposedly irrelevant factors, or SIFs, matter a lot, and if we economists recognize their importance, we can do our jobs better. Behavioral economics is, to a large extent, standard economics that has been modified to incorporate SIFs.

Richard Thaler on behavioral economics. Again and again, studies have put cracks in the edifice of rational homo economicus.

SIFs exist in product design, too. The myth of the rational utility-maximizing user can be just as pernicious and misleading an assumption. If it wasn't, we wouldn't need concepts like smart defaults in apps, the design equivalent of nudges like retirement savings programs that are opt out instead of opt in.

The lottery is the one pathway to wealth where poor people have an equal footing with rich people. Lottery players know the chance of getting rich with a lottery ticket is infinitesimally small. The point is that without one, the chance is zero.
What if saving could be like a lottery?
The idea of rewarding savings with prizes dates from at least 1694, when Britain, desperate to pay off war debt, lured savers with a jackpot. Prize-linked savings exist in some form in at least 18 countries today. Perhaps the experience most relevant for the United States is Britain’s Premium Bonds, established in 1956. The interest on the bonds isn’t repaid to the holders. Instead, it goes into a prize fund. Every pound savers put in (to a maximum of £30,000) gives them a chance to win a monthly £1 million jackpot plus a million different smaller prizes — all tax free. The program was begun as “Savings With a Thrill,” and the winning numbers were announced each month by celebrities.
At the program’s 50th anniversary, there was £32 billion in bonds — providing the government with capital at a cheaper rate than borrowing. Nearly 40 percent of Britain’s population — 23 million people — hold Premium Bonds. They are sometimes, but not always, the best savings deal — there is often a product whose return is better than the odds of what you’d win with Premium Bonds with average luck. But that’s the point: even though they might not be the left-brain choice, they get people to save.

From the NYTimes Fixes Blog, an idea to incentivize more savings. Doesn't sound any worse than most other ideas I've read to drive Americans to save more. In fact, it sounds better.