Why we make bad decisions

What’s so curious about human beings is that we can look deeply into the future, foresee disaster, and still do nothing in the present to stop it. The majority of people on this planet, they’re overwhelmed with concerns about their immediate well being.
Dan Gilbert
1957 –

Most people understand and accept that our circumstances are largely the result of decisions we’ve made. If we’re dissatisfied with life, we probably made poor decisions somewhere along the way. But what contributes to poor decision making?

Quite simply, when we consider the cost and benefit of an immediate action, we tend to underestimate the future cost we’ll incur and overestimate the gain or pleasure we’ll derive.

Psychologists and behavioral economists have conducted a large number of experiments to demonstrate this tendency. Here’s a summary of one such experiment.

If I gave you the choice of $50 today or $60 in one month, which would you choose? When this experiment was carried out, the overwhelming number of people chose the immediate benefit of $50 today.

Now, consider a slight twist to the problem. If you were offered $50 in one year or $60 in 13 months, which would you choose? Here, the results were reversed. Most people figured if they had to wait a year, they might as well wait one more month and gain an extra $10.

Look at the situation from a totally rational standpoint. In both instances, the time difference to receive the extra money is thirty days. But if there’s a chance for immediate gratification, we take it. When there’s no choice that benefits our present-day self, we’ll wait the extra thirty days and receive the higher sum.

The final phase of the experiment proved this point. If, after one year, you went back to the people who had decided to wait 13 months for the higher sum and offered them the original deal ($50 today or $60 in thirty days), most would change their minds; they would take the lower sum to get the money immediately.

Clearly, we have a hard time resisting the lure of instant gratification. One tactic to combat temptation is to become more realistic about the cost of our choices. We tend to have an idealized version of our future selves: we think we’ll have more time, less stress and make more rational decisions — choices that will offset the immediate lapse. So it’s okay to eat dessert today because we’ll have salad tomorrow. And we can splurge on a new sweater, a DVD, or dinner out, because we’ll stick to our budget the rest of the month. But then our future selves become our present selves, with the same desires, pressures, and demands.

What’s the answer? When we consider our future selves, most of us tend to think in general terms. We have a rather fuzzy picture of what life will be like for us. The way to improve our decisions is to picture the future in as much detail as possible. The more concrete the connection between our current selves and our future selves, the better our current decisions will be.

Choices are the hinges of destiny.
c. 570 — 495 BC

Copyright © 2013 John Chancellor

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