As humans, we typically do not have enough wealth to satisfy all our desires, for our desires are plenty. This leads us to continually battle between our present and future self. Should we consume less today in the hope of having more wealth tomorrow? Or, should we consume more today as tomorrow is uncertain? It is not easy to balance our present and future consumption. And behavioural psychology adds to our woes, as it shows that you can be swayed to choose either the present or the future based on your current environment. How?
Consider why you can be biased towards present consumption. You enjoy the benefits of consuming today. And the future is uncertain. So, what happens if you are given the choice of having a chocolate today or two chocolates day after tomorrow? Your brain lights up as a Christmas tree when it is faced with the offer of having the chocolate today. So, you discount the future steeply and prefer current consumption.
Now, consider why you can be swayed into choosing future over current consumption. Suppose you are offered a choice between having two chocolates day-after-tomorrow and some fruits today. Which would you choose? You may choose the healthier food today, but what if the smell of fresh chocolate wafts into the room when you are making the choice? You can be swayed into choosing the chocolate, even if it means that you have to wait for two days! Your decision in this case was primarily driven by an external stimuli — the odour of fresh chocolate drifting into the room!
Research in behavioural psychology shows that your current desire can determine how you make distant choices! Suppose you are sitting in a café preparing your monthly grocery list and you smell chocolate in the air. You are more likely to include chocolate in the list, even if you were to consume the chocolate sometime in the future!
What does this all mean to you? Since your decision to consume today or sometime in the future can also be driven by external stimuli, you should have controls in place to ensure that you do not overindulge in the present at the expense of the future! Behavioural psychologists suggest having external stimuli to save more for tomorrow! One such stimulus is to simulate an older image of yourself; this simulated image of your older self is expected to make you think more about your retirement age and your retirement savings! Of course, it is moot if you will immediately act on the stimuli and set-up adequate systematic investment plans in your retirement portfolio.
(The author is the founder of Navera Consulting. Feedback may be sent to knowledge@thehindu.co.in )