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Katy Milkman: I’m Katy Milkman, and this is Choiceology.
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Katy Milkman: We’ve all been there. You spot a seemingly good deal on a thing you didn’t even know you needed, but you feel compelled to act. You need that fancy banana slicer now! And the ad says that if you order today, you’ll get a bonus spork. Awesome! But what’s actually going on here? Is this something you really need? Or is it an impulse-buy? Is cooking even your thing?
Why does the immediate reward of a small thing sometimes get in the way of bigger, more important things down the road? That urge to grab a candy bar on your way through the checkout line, probably gets in the way of your long-term diet goals. But maybe you do it anyway. What’s up with that? We’re going to look at how our choices are influenced by the way we experience time: the here and now, and the future.
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Katy Milkman: This is Choiceology, an original podcast from Charles Schwab. It’s a show about the hidden forces that can affect your ability to make the best decisions. We look at everyday choices and high-stakes judgments, and we analyze them to help you avoid costly mistakes.
We’ve gathered some unsuspecting victims together for a test, a battle of wills and willpower. We’ve gone out into the world to test an idea about temptation and time.
Facilitator: Hello! How are you guys doing today?
So we’re asking the question, “Given the choice between an apple and a chocolate bar, which would you eat right now?”
Participant 1: Probably the chocolate.
Participant 2: Yeah.
Participant 3: Chocolate bar!
Participant 4: I’d take a chocolate bar of some sort.
Participant 5: Two chocolate bars, please.
Facilitator: Given the choice between an apple and a chocolate bar to eat right now, today, which are you choosing?
Participant 6: Probably have to go with an apple.
Facilitator: OK. Go ahead and pick whichever one you want right now.
Participant 6: I’ll have a chocolate bar.
Facilitator: So you would eat a chocolate bar right now?
If you were, say, planning for a snack to eat tomorrow, which one are you going to choose?
Participant 1: The apple.
Participant 3: I’d take an apple for my lunch to go to work. It’s healthier. I ate enough sugar today.
Participant 4: I think for tomorrow, I would take the apple.
Facilitator: And what if you had to choose between an apple and a chocolate bar for a snack to have tomorrow?
Participant 5: I’d go for the Apple, I think.
Facilitator: And why do you think there’s a difference between what you choose tomorrow and what you’d have right now?
Participant 5: ’Cause the chocolate’s nicer and the apple’s healthier. So tomorrow I’m trying to make a good decision for tomorrow, a healthier decision. But today, I just want to eat the chocolate.
Katy Milkman: Did you hear what happened there? People often made different choices depending on whether they were deciding for the present or the near future. Why is that? I’ve got another example of this kind of behavior, and the stakes are a bit higher than choosing a quick snack at 2:30 in the afternoon.
Alex: Basically, my childhood experience was no love at home, no father figure, and pretty tough at school as well.
Katy Milkman: Alex had a tough childhood. He grew up in a suburb of Toronto. His father left when he was three. His mother was volatile, and prone to rage and neglect. And she was poor. At least that’s what Alex thought.
Alex: She wouldn’t really buy me anything ever. So I actually had a paper route from age five, very young, and I was actually saving up money. So if I wanted to get something, like even toys, I’d have to buy them myself.
Katy Milkman: Alex was ostracized early on at school for his disheveled appearance and clothes.
Alex: I just got tormented a lot at school. Kids made fun of me. People would call me a loser. Almost all the kids didn’t want to play with me at all. What I always wanted was friendship. I always just wanted to be accepted.
Katy Milkman: Imagine how hard this was for a kid. That difficult environment at home and lack of social support at school took a toll. Eventually, by the time he was a teenager …
Alex: I was just like, “I’m done. I’m not taking this anymore.” So I took my clothes, and I just got out of there.
Katy Milkman: Alex ran away from home. He was 15 years old, and on the streets.
Alex: I just kind of survived. During that period, I would sometimes sleep on buses. Sometimes, I would sneak into maybe a laundry room in a building. Sometimes … I remember once just sitting all night at a bus stop. This is during the winter too. The Canadian winter was brutal. So freezing, and literally moving my toes around because it felt like they were going numb.
Katy Milkman: The amazing thing is Alex stayed in school during this period.
Alex: So I was homeless, but I would still go to school, and then try and act like it’s normal, and act like I’m OK and whatever. And it’s like you don’t want to admit to anybody that you’re homeless.
Katy Milkman: Alex turned 16 about a month after he left home. This meant he was eligible to work and live in a youth hostel, where he had a bed, three meals a day, and a five-dollar-a-day allowance.
Alex: Eventually, I got student welfare. It was enough to get a small basement apartment. So I kept going to school. I had my own place, and so I was independent from 16.
Then, one day, I was in a car with a friend of mine, and I get a phone call. And it was an old friend of my mother’s that I’d known since I was a kid, and she said, “Hey, you know, I need to tell you something. Your mother is dead. She killed herself.”
So I was absolutely shocked, surprised, and I wouldn’t even say … In that moment, I wouldn’t even say “sad.” You’re just too shocked and in a state of disbelief to really process it, what that means.
Katy Milkman: Alex knew his life had changed, but he had no idea how big a change it would be. He received the keys to his mother’s apartment.
Alex: So I just went to open the mail, and there was one bank account, and it’s got like half a million dollars in it. But it has her name and my name on it. So it’s already in my name. And then, I open another one, and it had, like, I don’t know, 200,000 or so, maybe 250 British pounds. So it was like that much just in cash, just sitting in bank accounts that’s already in my name. And I inherited about $1.1 million when I was 18.
Katy Milkman: Alex had gone from neglected child, to homeless teenager, to a millionaire.
Alex: When I actually started realizing the amounts, and I started opening these envelopes up, you just start flipping out. You’re happy, but you’re also in a state of shock.
Katy Milkman: How did this happen? Where did his mother get all this money? And why hadn’t she shared it before she died?
Alex: She came from the Soviet Union. She was poor. So when she started making decent money as a violinist … and certainly, when she came to Toronto, she was earning 50 grand a year. That’s a fortune. And she didn’t spend any of it.
Katy Milkman: All of a sudden, Alex had more money than he’d ever seen before.
Alex: Being rich suddenly, it makes you feel really invincible, like absolutely on top-of-the-world invincible—and, in a way, superior. I literally thought I was better than other people. It really got to my head. And it really skews everything. It warps your sense of reality. Instant millionaire just makes you feel super. You feel super.
Katy Milkman: OK. This is probably a good moment to stop and ask yourself: What would you do in this situation? Imagine you’d gone from almost nothing to a millionaire overnight.
Let’s think about how this scenario relates to our snack experiment earlier. That experiment highlighted that we’re inherently impulsive, and lured by temptations. Instant gratification can take many forms: unhealthy food, going out for a wild night before an exam instead of studying, or spending money the minute you get your hands on it.
You can imagine in Alex’s case that he would be tempted to spend a chunk of that million-dollar windfall right away. As a matter of fact, he went to town.
Alex: I remember spending money quickly, but I couldn’t even tell you on what. You just don’t think about it when you have that much money. For me, it was just like, OK, suddenly I’m Mr. Cool. And man, it just completely went out of control.
I spent a lot of money on eating out, going to restaurants, quarter-million-dollar penthouse. I lent several friends between $20- and $50,000. One guy, I lent $100,000. Quite a bit on clothing, little bit of travel, a movie script. I got a producer credit for funding this movie. So there was a lot of 20, 25, 50K pops to just help somebody who I thought was my friend, and, of course, none of that money ever came back.
Katy Milkman: As you might’ve guessed, this extravagant spending spree came to an abrupt and unhappy end.
Alex: Last time I checked, I had maybe 10,000 or something in my main account. And I hadn’t checked in a while. I was kind of scared to look. And I thought, “OK, I better take a look.” And I took a look. There was, like, 800 bucks or something. And I thought, “This is it. This is it. It’s over. There’s nothing left.” And it just hit me, like, “OK. That’s it. I’m about to be broke again.”
Katy Milkman: Alex burned through his entire million-dollar inheritance in about five years.
Alex: When you grow up, and you just don’t have anything, and suddenly, it’s like you have virtually unlimited money, and you can have anything. … Man, it’s just a shortcut to feeling good. You spend money, just get whatever you want to. It’s so instant. It’s instant gratification. There’s no, like, “Oh, it’s a bit expensive,” or, “Maybe it’s not a good idea.” You’re just in heaven. It’s like finally going to Disneyland.
Katy Milkman: Happily, Alex learned from his mistakes. He managed to pull himself back from the brink, and now has a successful career and some money in the bank.
Alex: I learned a lot about myself. That experience was a stepping stone for me, and it was extremely profound. And actually, even when it was happening, even when I blew all that money and it was all over, I knew deep inside, I knew that one day I would have money again, and that I would treat things very differently.
Katy Milkman: Alex’s story isn’t unique, at least in terms of the way he spent his money. Maybe you’ve heard cautionary tales like this before. There are quite a few stories out there about lottery winners, for example, who win millions, and, somehow, go broke within a year. And even though windfalls like these are relatively rare, these stories do highlight a tendency that we all have: a tendency to prioritize the present over the future.
There’s a good reason we do that. But before I explain, I want to give you another example. Actually, no. I’ll let Noble Prize–winning economist Richard Thaler tell you a story from back when he was a junior professor.
Richard Thaler: I invited a bunch of economics graduate students over for dinner, and there was something cooking in the oven, and we were having an adult beverage, and I put out a large bowl of cashew nuts that we started nibbling on. And after 5 or 10 minutes, I realized that we were devouring these cashew nuts at a rapid rate, and that our appetites and waistlines were in danger.
And so I rudely grabbed the bowl of cashew nuts and went and hid them in the kitchen. And I came back, and everybody was happy. They go, “Thank God you got rid of those nuts! We were going to eat them!”
And then, since it was a group of economics graduate students, we immediately started analyzing what had happened, and we realized, “Well, wait a minute. We’re not allowed to be happy. Because the first principle of economics is that more choices are better than less. And before, we had the choice of eating nuts or not, and now we didn’t. So we’re worse off, but we’re happy. How can that be?”
And that got on my list of funny behavior that I should think about. And it’s, of course, an illustration of self-control problem, that we knew that if the nuts were there, we would eat more of them than we thought was best. But of course, the whole idea of eating more than you think is best is something that economists don’t really permit. And this is one of these parts of economics that never gets written down, so there’s nowhere in any textbook that it says that there are no self-control problems; instead, it just says, “People choose to maximize their utility.”
But in fact, we often make choices that we know we’re going to regret later, and … this was kind of a small example, that we would have eaten more of those nuts then we would’ve chosen to eat. My mistake was filling the bowl too much. Of course, that’s led to decades of research by myself and others on how to help people save for retirement, and it basically amounts to taking some part of the pay package, and hiding it in the kitchen where we can’t spend it.
Katy Milkman: That was Richard Thaler, winner of the 2017 Nobel Prize in economics, and the co-author of the New York Times best-selling book Nudge: Improving Decisions About Health, Wealth and Happiness. We’ll hear more from Richard later in Choiceology in other episodes, but one thing he didn’t do in that story was name this tendency to favor immediate small rewards, like a bowl of cashews right in front of you, over bigger, future rewards, like the dinner in the oven.
There’s actually a term for it, and it’s called “present bias.” It’s basically the idea that people care too much about things that they can get or enjoy in the present relative to things they’ll get, and have to wait for, in the future.
Richard’s dinner guests discounted the value of the future dinner, and overvalued the cashews that were right in front of them. The same thing goes for the people in our apples-and-chocolate experiment earlier. I actually showed in my own research that this happens in other settings too. It happens when people rent movies, for instance. Lots of us pick highbrow films, but then when the time comes to choose what to watch, we postpone watching those award-winning documentaries, and instead, we plow through lowbrow movie after lowbrow movie.
I want to get a bit deeper into this bias with my friend and colleague, Angela Duckworth. Angela’s done some great research on the general topic of self-control failures and present bias.
Hi, Angela. Thank you so much for coming to the studio today.
Angela Duckworth: Hi, Katy. It’s great to be here.
Katy Milkman: Angela, what do you find most interesting about present bias?
Angela Duckworth: I think the idea that human beings are so myopic is itself interesting. Though I think we should cut ourselves some slack because if we compare ourselves to other animals like squirrels, and dogs, cats, and even our nearest cousins, monkeys and orangutans, we are much more farsighted than other animals.
I think what makes the human condition so interesting is that we struggle with present bias. We’re aware of present bias. It tortures us. We feel bad about skipping out on exercise because we can see ahead into the future. So yes, we have present bias, but we at least have, compared to other animals, enormous awareness of present bias. And that is a start.
Katy Milkman: OK. How does present bias change over a person’s lifetime?
Angela Duckworth: When you look at very young children, right? Let’s take babies. They are pretty much living in the moment. You don’t see babies worrying about their retirement savings, for example. And then, when you progress through toddlers, and preschool, early elementary school, you can see that the time horizon is extending to the future. It is probably not the case that 50-year-olds are a whole lot more farsighted than 40-year-olds, but certainly throughout childhood and adolescence, there is this extension temporally into being able to see farther and farther into the future.
Now, that doesn’t mean that we can always do something about it. For example, adolescence is probably the most impulsive period of life in a sense that adolescents know they’re doing stupid things, but they’re still doing them. So the idea that you’re aware of the future doesn’t guarantee that you’re going to act in your future best interests.
Katy Milkman: So does that help explain why a teenager who inherited $1 million might spend it down very quickly?
Angela Duckworth: Adolescence is such a fascinating period. I mean, anybody who has a teenager, go ahead and roll your eyes with me because I have two. And teenagers are at their peak for reward sensitivity, and sensation-seeking. There is a kind of drive to do things that are novel, fun, exciting and pleasurable when you’re a teenager that you don’t have as strong at any other developmental period, it seems.
At the same time, your capacity to control yourself, your prefrontal-cortex maturity, the strategies you have to regulate your impulses, those are coming along, but they’re still developing. And that’s why some people call adolescence “the perfect storm” because you have these strong impulses for immediate gratification and yet are still developing capacity to control those impulses.
Katy Milkman: So Angela, what’s your favorite study on present bias?
Angela Duckworth: I really like studies that show how you can overcome present bias—and overcome the fundamental human conflict that we all have between, “Now, I can feel this good thing right away. It’s going to be pleasurable” versus “Well, five minutes, a year, 10 years later, I’ll be better off.” So what can people do?
Really, the trick to self-control is to bring that gratification forward, not to delay gratification, but, in clever ways, to consume things in ways that are immediately pleasurable. And here’s one example: Ayelet Fishbach at University of Chicago has shown that when you encourage people to think of something as important, important to their long-term future, you don’t actually do as good a job at motivating them as when you encourage them to think about it as fun and enjoyable. She showed this with gym-goers, and the idea that if you could think about the thing you’re about to do at the gym, that next piece of exercise equipment, how can you get the most fun or pleasure out of it? Actually, that’s going to end up paradoxically benefiting you and your exercise habit in the long term.
Katy Milkman: So one way to avoid giving in to immediate temptation is actually to make whatever you know you should be doing tempting as well? To try to make that future value feel like something that’s enticing right now?
Angela Duckworth: I think that’s actually the secret to self-control. We can basically toggle our immediate experience in clever, strategic, tactical ways.
Katy Milkman: But it’s so hard to resist temptation.
Angela Duckworth: It was Oscar Wilde who said, “I can resist everything, except temptation.” And for many of us, we would say, “Oh yeah. That’s exactly me.”
Katy Milkman: That’s such a good quote. Thanks so much for taking the time to chat with me today, Angela.
Angela Duckworth: I loved it. Let’s do it again.
Katy Milkman: I’m Katy Milkman, and this is Choiceology, an original podcast from Charles Schwab. You might be wondering how cognitive and emotional biases can affect your financial decisions. Well, we have some help for you on that front. Check out our sister podcast, Financial Decoder. It’s designed for people who want to make better decisions with their money. Mark Riepe hosts the show. Mark is the head of the Schwab Center for Financial Research, and he can help demystify some of the financial choices you might be facing so that you’re better-equipped to avoid mistakes. You can find it at Schwab.com/financialdecoder or wherever you listen to podcasts.
So we’ve been talking about present bias and what a problem it is, but what can we do about it? How can we avoid making this mistake? Well, as Angela Duckworth mentioned, one strategy is to do whatever you know is in your long-term best interest in a way that actually makes it fun, and at least a little bit instantly gratifying. So if you’re going to the gym, make it fun by going to a workout dance class with a friend. Don’t use the most miserable calorie-burning machine you can find. If you can find a way to actually enjoy that thing now that’s good for you, you might have a better chance of actually doing it.
There are a couple of other great solutions that have been well studied too. One is called “future lock-in.” It just involves making choices in advance that you’ll be stuck with when the future becomes today. For instance, one creative study by Eric VanEpps, Julie Downs and George Loewenstein showed that if people are required to order their lunch several hours in advance of eating it, they order healthier meals. Other research has shown that asking people to sign up to start saving or contributing to a charity in the future can increase contributions.
Another solution is using what economists call a “commitment device.” Commitment devices impose penalties or restrictions on you if you fail to achieve some future goal like eating a healthy lunch tomorrow. For instance, an alcoholic who takes the drug Antabuse, a drug that makes you feel sick if you even sip a drink, is using a commitment device. Alarm clocks are commitment devices for over-sleepers. Commitment devices prevent you from going back on your best intentions when the future becomes today by imposing serious consequences on your future-self for goofing, and, as a result, they can be a helpful fix for self-control problems. Just making commitment devices available has been proven to help smokers quit smoking and under-savers vastly increase their savings rates. So even though it’s really hard to avoid present bias, there are tools and strategies out there to help you manage it—and to help shift some of the temptation of now into a more gratifying future.
You’ve been listening to Choiceology, an original podcast from Charles Schwab. If you’ve enjoyed the show, leave us a review on Apple podcasts. It helps other people find the show. And while you’re there, you can subscribe for free. Same goes for Google Podcasts and other podcasting apps. Subscribe, and you won’t miss an episode.
Next time on the show, another psychological effect that causes you to run with the crowd even when it might not be in your best interest. I’m Katy Milkman. Talk to you next time.
Speaker 1: For important disclosures, see the show notes, or visit Schwab.com/podcast.
Choiceology, an original podcast from Schwab, explores the lessons of behavioral economics and exposes the psychological traps that can lead to expensive mistakes.
Listen in as host and Wharton professor Dr. Katy Milkman shares stories of irrational decision-making—from historical blunders to the kinds of everyday errors that could affect your and your clients' futures.
Featured episode: “The Temptation of Now”
How are our choices influenced by how we experience time—both the here and now and the future? In this episode of Choiceology, host Katy Milkman examines the present bias, which has an outsized influence on the decisions we make, and how we can combat it. You’ll also hear from Nobel prize-winning economist Richard Thaler and renowned psychologist Angela Duckworth.