Why we're greedy today, graceful tomorrow
Category: Blog & News
Turns out, we don’t know ourselves very well. By that I mean what we think we’ll want in the future can be very different to what we actually want when we get there.
It all comes down to what’s known as “hyperbolic discounting”, where we make decisions today that our future self would prefer we hadn’t have made (for instance, smoking or nor saving for retirement.) In essence, we are biased towards the short-term.
It turns out there are two particular mistakes we make when it comes to forecasting the needs of our future selves, which means for us in business we might be structuring inventory and product offerings on false hope.
Future Me is virtuous
The first mistake is that we think we’ll be more virtuous tomorrow than we actually are.
For example, if I ask you to nominate the movies you want to watch over the next month you are likely to select a range of high-brow, art-house films. By contrast, if you are making your choice of movie to watch tonight you are more likely to opt for the Adam Sandler flick (and shame on you).
That’s exactly what happened when researchers (PDF) asked two different groups of people to choose movies in either a sequential (i.e. choosing as they went) or simultaneous condition (i.e. choosing ahead of time), with people opting for the highbrow only when “Future Me” had to watch it.
Same goes with food, with researchers finding that healthier food options were selected when they were pre-ordered, and less healthy options consumed when the decision was made on the spot.
Future Me wants variety
The second mistake is that we think we’ll want more variety in our choices than we’ll actually end up using. If, for example, I ask you to pre-order your lunches for the coming week, chances are you’ll make a broader selection than if you were to make the decision about what to eat on the day.
This is known as our “Diversification Bias”, and according to researchers Salisbury and Feinberg (PDF) we overestimate our desire for different options by as much as 20%.
(BTW If you’ve ever come home from holiday having only worn a few of the dozen outfits you packed, you’ll know what I mean.)
Implications for your business
If you are asking your customer about what options they might like in the future they will tend to ask for more than they end up using.
In the US some employers have ended up offering dozens of different 401k (pension) plans to employees even though, when the crunch comes, people can be so overwhelmed by options they don’t make a decision at all. In fact in the case of 401k plans, take up for plans offering a handful of fund choices was much higher than those with a dozen or more (Iyengar, Jiang, and Huberman 2003), proving that less choice can mean more choosing.
Implications for you
Having a virtuous Future Me who loves variety can warp our decision-making. It can mean we put off things we should do now till later (e.g. dieting, exercise, giving up smoking), and waste time and money keeping options open even though we don’t need them (e.g. a wardrobe full of clothes we will never again wear). The best way around it? If it’s something you really want to do in the future, find a way to get yourself committed in in the immediate term by making the first step small (for more), whereas if it’s something you are holding on to for a future you that will never arrive, take steps to overcome your fear of what you have to lose (more on that here).
This article also appeared in Smartcompany.
Image source: here.