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Why some people save, and some spend

By: Cass R. Sunstein

Posted: 10/25/2012 3:51 PM | Comments: 0

Many of us have said our own version of St. Augustine’s famous prayer, "Grant me chastity and continence, but not yet." We vow to start dieting and exercising (next month). We promise to begin saving money (later). Soon, we will be calling to make that long-overdue dental appointment (maybe).

Philosophers and social scientists have been keenly interested in learning exactly why some people fail to give a lot of weight to their own futures, even when that failure produces real hardship. Perhaps those who start to smoke don’t even identify with their future selves, who may be seriously harmed as a result.

Behavioural economists have explored the phenomenon of "present bias," which leads some of us to make decisions that produce short-term rewards but long-term headaches. Of course it makes sense to prefer a dollar today to a dollar tomorrow. But does it make sense to prefer a dollar today to 10 dollars in two months? With respect to health and finances, some people seem to think about their future selves in the same way that they think about complete strangers.

As it happens, this is no mere metaphor. Studies of the human brain demonstrate that some of us do exactly that. Neuroscientists have learned that when people are thinking about themselves, an identifiable region of the brain, called the ventromedial prefrontal cortex (VMPFC), is most actively engaged. When people are thinking about others, the VMPFC is not so active. Here, then, is a remarkable research opportunity. If you ask people to think about themselves in the future, is the VMPFC active — or not?

Harvard psychologist Jason Mitchell and his co-authors enlisted neuroimaging to answer this question. The basic finding is that impatient people — those who neglect the long term — seem to think about their future selves in the same way that they think about other people.

Here’s how the experiment worked. People were asked how much they would enjoy engaging in some activity (such as watching a sunrise) in the next day or in a year. They were also asked how much another person (a stranger) would enjoy the same activity in the two periods. The participants’ brains were scanned to examine the activity of the VMPFC when people were thinking about themselves and strangers in the next day and in the next year. At a later time (between two weeks and four months later), the same participants were asked whether they wanted an immediate reward or a larger reward subsequently.

An important finding is that for some people, the VMPFC was about equally active when they were thinking about themselves both in the next day and in the next year, whereas for other people, the VMPFC was far more active when they were thinking about themselves in the next day.

Those in the former group, with a lot of activity in the VMPFC when thinking about their future selves, were more likely to reject an immediate reward in favor of a bigger reward in the future. By contrast, those in the latter group, with less activity in the VMPFC when thinking about their future selves, were impatient. In terms of the operation of the brain, they thought of their future selves in the same way that they thought of strangers. That kind of thinking was reflected in their unwillingness to give up an immediate reward in return for a bigger reward in the future. Here, then, is a clue, located in the brain itself, to why some people give relatively little weight to their own futures.

Can anything be done to encourage people to give the future a bit more weight? Hal Hershfield, a professor at New York University’s Stern School of Business, and his co-authors tried a simple nudge: Provide people with digital pictures designed to show them what they will look like a few decades from now. Then explore whether seeing those pictures will make people more likely to save for the future, rather than spending the same money on a fun occasion or "to buy something nice for someone special."

The result? People who were exposed to images of their future selves significantly increased (and in some cases more than doubled) the amount of money that they allocated to their retirement account. Both college students and a number of adults showed the same basic pattern.

True, the proper tradeoff between the present and the future isn’t always obvious. Reasonable people focus more on their well-being in 2013 than in 2023. You might refuse to suffer acutely now merely because you might benefit in the distant future. Nonetheless, the problem remains: A lot of people run into serious trouble because they don’t sufficiently identify with their future selves.

It might not be a ton of fun to imagine what you will look like a few decades from now. But consider giving it a shot. The life you save may be your own.

Cass R. Sunstein, the Felix Frankfurter professor of law at Harvard University, is a Bloomberg View columnist. He is the former administrator of the White House Office of information and regulatory affairs, the co-author of Nudge and the author, most recently, of On Rumors: How Falsehoods Spread.

—Bloomberg News

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