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Okay, I'll start saving my money tomorrow

One of my daughter's favorite bedtime stories is A Birthday for Frances. I like it, too, for the charming illustrations, hilarious dialogue and instruction in cutting-edge behavioral economics.

Frances, the story's heroine, secures an advance on her allowance to buy bubblegum and a Chompo bar as a birthday present for her little sister Gloria. Yet, as she returns with her father from the sweet shop, Chompo bar in hand, Frances thinks of all kinds of reasons why she, not Gloria, should eat the chocolate.

"You would not eat Gloria's Chompo bar, would you?" asks her father, anxiously. "It is not Gloria's yet," replies Frances, but her reply is muffled; she is already chewing on Gloria's bubblegum.

She intended to give the candy to Gloria, but when it was actually in her hands, the temptation overwhelmed her.

Mainstream economics assumes people are impatient in a consistent way: If I would rather have $110 on Dec. 6 than $100 on Dec. 5, then logically I would always be happy to wait a day for a gain of 10 percent, and I would rather have $110 tomorrow than $100 now.

Most people do not actually behave like this. The "now" has a strong pull. Almost everybody says they are happy to wait a day at some future time, but not today. They would prefer $100 today to $110 tomorrow and, while they say they would prefer $110 on Dec. 6, come Dec. 5, if you ask them again, they will change their minds, just as Frances did.

It is possible to model such preferences - in fact, this year's Nobel laureate, Edmund Phelps, did so in a paper with Robert Pollak back in 1968 - but they have only recently flowered into a full set of explorations and calibrations.

One of the results of the recent research is that we have a sense of just how strong the pull of the now actually is. The answer is that anything on offer right now is worth half as much, again, as it would otherwise be; that also means that any immediate cost, such as the pain of going to the gym, is similarly inflated. (That is, you'd much rather go to the gym next week than today.)

These insights can be used to help people make better decisions. For example, economist Richard Thaler has proposed a plan called "Save More Tomorrow," in which employees make commitments to contribute to their pensions not now, but later. Early trials show dramatic success in increasing contributions.

Yet, we are still far from understanding how much sophisticated people will or should plan to deal with their own likely failings. Frances was perhaps too young to realize that when the Chompo bar was in her hand, she would submit to temptation. Sometimes the rest of us do better; sometimes not.

Tim Harford is a columnist for the Financial Times. His latest book is The Undercover Economist.

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