Behavioral New World
July 1, 2023
Present bias
Have you ever had that extra cocktail, knowing—somewhere in your mind—that as a result, you’ll have a hangover the next morning? Do you know someone who, arriving at retirement age, has saved far less than necessary to support their lifestyle?
These examples reflect “present bias,” the tendency to discount the future too heavily, giving inappropriate weights to payoffs that are immediate or closer to the present time.
How do we know that the weights are inappropriate? One answer: When people become educated about “exponential growth bias” (see my April 2021 newsletter), they make different financial decisions, decisions that give more emphasis to the future. A second answer: ex-post, people regret the hangover or the lack of retirement savings. The challenge is to relate to your future self in a constructive manner.
Why does this bias exist? A reasonable conjecture is that 60,000 years ago, a person’s goal was simply to live one more day. After all, if you die today, there is no future “you” to consider. Today's risks of dying have diminished, but we retain a neurological bias toward the present.
As suggested by the examples, the consequences of present bias are not trivial, e.g., insufficient savings for retirement and poorer health in the future. “If I knew I was going to live this long, I would have taken better care of myself” as the saying goes (variously attributed).
What can be done to counteract present bias? As I suggest in my book,[1] you can experiment with age progression. There are free websites on which you can post your photo and the software will “age” the image to give you a sense of how you will look in, say, 20 years. It is hard to heavily discount the future when looking at a more-vulnerable you.
Also discussed in my book are commitment devices. These can be informal—e.g., telling your friends about your resolution to save more or to participate in Dry January. Taking it a step further, there are websites where you can make a more public declaration, with a monetary penalty if you don’t engage in the desired behavior. (As with age progression, a Google search will turn up several options.)
I enjoy writing letters to my future self (futureme.org; I’m not on commission 😊). This exercise is useful because it shows me that I am not very good at predicting my future emotional state(s). In fact, research shows that no one is particularly good at that.[2] In turn, that makes it difficult to make good decisions about the future.
But all is not lost. Both Daniel Gilbert and Hal Hershfield (footnote 2) suggest finding someone who has made a decision similar to the one you are contemplating and ask them how it turned out. In an interview with Annie Duke, Hershfield puts it this way:
“It may make more sense to find somebody who's gone through a similar experience and ask them, because even though we think we're unique, we're not all that unique. Somebody else who's maybe similar to us who's gone through something, they've got valuable data points because they've already done it.”[3]
For example, ask someone who automated an increase in retirement savings whether they were happy with the outcome.
Many of you are aware of the concept of “mindfulness,” the practice of being in the moment, being wholly in the present. Does mindfulness create or contribute to present bias?
I think not. One can be mindfully engaged in planning for the future, that is, fully focused on thinking ahead. In fact, being mindful of the future, as we’ve seen, can help mitigate present bias. One can also be mindfully engaged in thinking about the past, perhaps trying to learn from past mistakes.
So being in the present moment does not necessarily mean that you are under the influence of present bias.
So give a present to your future self—act to mitigate present bias.
My website: jshowe.com
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[1] The Foolish Corner is available on Amazon, print or Kindle.
[2] In his book Stumbling on Happiness, Daniel Gilbert makes a compelling case that we are not good at forecasting our future states of mind. The phrase for the cocktail party is “affective forecasting” (at which we are not very effective). More detailed suggestions for overcoming present bias appear in Hal Hershfield’s book, Your Future Self.