THE START OF a new year is a time when many of us decide to make changes. New year’s resolutions primarily concern behavioural change, and studies have found that only about half of individuals who make them are successful in altering their behaviour.
Behavioural economics provides important insights into why we might fail to alter our behaviour, even when we resolve to do so. The field incorporates insights from psychology to better understand decision-making.
It is evident from observing real-world human behaviour that people do not always act as rational agents, and so decision-making can be flawed. People often make choices that are not in their own best interests and are influenced by social norms, emotions, culture, cognitive biases and habits.
In addition to observing human behaviour, behavioural economists also conduct experiments to determine how individuals can improve decision-making. Understanding why we sometimes fail to follow through on our resolutions can increase our chances of successfully keeping them.
Present bias and future discounting
Decision-making involves weighing up the costs of an action versus the benefits. With certain choices the costs are immediate, but the benefits accrue sometime in the future. Many of the resolutions we make involve goals that will take time to achieve and involve a number of small, costly actions, with cumulative benefits that lead to the desired outcome.
Getting fit or losing weight for example requires us to make daily choices that we might find difficult, at least to begin with, but the benefits of these choices aren’t realised for some time.
Therefore, we face a trade-off between our present actions and expected future outcomes. The tendency of individuals to prefer a lower reward now than a higher one in the future is called present bias. This cognitive bias helps explain why people often fail to act in their own long-term best interests. We tend to discount rewards that will accrue in the future, in other words, we place a lower value on them than we would were we to receive them today. The further into the future those rewards are realised, the less we value them.
Our intertemporal preferences are not easily altered; if we are impatient, we will place a higher discount on future returns. It is difficult to change our temperament, so we probably can’t eliminate present bias entirely, but what we can do is account for it in our planning to increase our chances of success.
If our resolution involves a long-term goal, we can set intermediate goals to ensure some benefits are realised sooner. For example, I might want to get fit to run a 10km race this summer, but if l set intermediate goals of running 3km, 5km, and 8km between now and then, I will realise some of the benefits sooner and so will value them more.
Status quo bias and habitual behaviour
Another reason we find it hard to alter behaviour is that about 40 percent of the actions we take on a daily basis are unconscious or habitual. Once we have made a choice, even when we have the option to change, we tend to stick with our previous decision. This is called the status quo bias. This bias explains why we often go with the default option and fall into patterns of behaviour. Habits are hard to break and often we need to be ‘nudged’ out of them. A nudge involves changing the choice architecture to increase the likelihood that the more beneficial option is selected, without altering the costs or benefits associated with the decision. The choice architecture simply refers to how the choice is presented to us.
One way to nudge ourselves out of habitual behaviour is to keep a diary; record and plan our actions in advance.
Studies have shown that these types of ‘deliberation interventions’, where participants are asked to plan, consider, and then record their choices have been successful in reducing habitual car use and consumption of animal products. This kind of self-nudging can be used to increase our chances of keeping our resolutions to change behaviour. In addition to actively deliberating, we can change our default options. For example, if we want to eat more healthily, we can rearrange the kitchen cupboards, so the healthy foods are easier to access and the sugary food is out of reach, or not purchased at all.
People respond to incentives
If nudges are not sufficient to change behaviour, then it might be necessary to incentivise behavioural change. One of the fundamental principles of economics is that people respond to incentives. If you change the costs or the benefits associated with a choice, it will lead to a change in the decision that is made.
Policymakers often try to influence individual choices by increasing the cost of harmful behaviours, for example minimum unit pricing to decrease alcohol consumption, or lowering the cost of beneficial behaviours, such as subsidising third-level education to increase participation rates.
To maximise your chances of success in changing your own behaviour, add some incentives.
In addition to setting intermediate goals on the path to a longer-term goal, add some intermediate rewards to your plan. If you are trying to give up something, like smoking or alcohol, you can make these rewards tangible by putting money into a jar or an account each time you don’t purchase the good. Then set a date when you will use the accumulated funds to buy yourself a reward.
Finally, many empirical studies have shown the effectiveness of mantras in achieving goals and improving health and well-being. Beckett provides one of my favourite mantras, particularly useful if you are already struggling with your new year’s resolutions: ‘Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.’
Dr Emma Howard is an Economist and Lecturer at Technological University Dublin.
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