Capital Ideas - Summer 2013 - page 38

Summer 2013 | Capital Ideas
for. When we find ourselves wait-
ing in that same line, we make a
similar inference about ourselves,
particularly when we are uncer-
tain about the value of what we’re
waiting for. Fishbach theorizes that
when people wait, their self-per-
ceptions unconsciously raise the
value of the object they’re waiting
for. And building on Thaler’s in-
sights, people become more patient
when a larger payoff is involved.
The key point, therefore, is that
waiting leads people to value the
things they’re waiting for more.
This understanding can be useful
knowledge for businesses. Finan-
cial advisers can use waiting to in-
spire people to save responsibly for
retirement. If an investor has pa-
perwork to fill out, it may be ben-
eficial to have her hold off on mak-
ing investment decisions until after
she has completed it. It could also
help to thank her for being patient,
providing a gentle reminder that
the investment is worth the wait.
Then she may be more patient and
may make more sensible choices.
Some companies already use
waiting to entice customers. Apple,
by announcing a product and mak-
ing people wait for it, makes peo-
ple excited to shop and willing to
pay for the latest gadget. Celebrity
chef Grant Achatz sells tickets to
his restaurants, creating a system
where people pay for their meal
several months in advance. When
people wait for their dining expe-
rience, they value the experience
of eating at one of his restaurants
more highly, enough that they pay
several hundred dollars (or more)
for a ticket. These strategies may
be effective for other reasons as
well, but they help reinforce Fish-
bach’s research.
Better understanding the psy-
chology could help customers,
too, by improving their patience
and, using related logic, helping
them avoid overpaying. Fishbach’s
conclusions suggest that because
self-perception generally happens
automatically, if customers pay
close attention to what they value,
they may be less vulnerable to au-
tomatic influences. A person look-
ing to buy a car can tame the influ-
ence of self-perception if she goes
shopping with a plan. If she is de-
termined to buy a basic car model,
she may be less swayed by a sales-
man who makes her wait before
pushing an upgraded model. It’s
something to ponder while waiting
at the financial adviser’s office, the
dealership, or during that agoniz-
ing, four-second wait for a website
to load.
Papers cited
Xianchi Dai and Ayelet Fishbach,
“When Waiting to Choose Increases
Patience,” Organizational Behavior
and Human Decision Processes,
Walter Mischel and Ebbe B.
Ebbesen, “Attention in delay of
gratification,” Journal of Personality
and Social Psychology, October
Walter Mischel, Yuichi Shoda, and
Monica L. Rodriguez, “Delay of
gratification in children,” Science,
May 1989.
Richard H. Thaler, “Some
Empirical Evidence on Dynamic
Inconsistency,” Economics Letters,
August 1981.
How patience pads the pocketbook
The cost of impatience becomes clear
in saving for retirement. When it comes
time for people to take part of their hard-
earned paychecks and invest it towards
retirement, they often save too little. It’s a
textbook case of intertemporal discounting:
people prefer a smaller amount of money
right now to a larger sum that they won’t
receive until many years later. Even though
people may intend to save, they often lack
the willpower to carry out their plans.
Richard H. Thaler
has a response to
this problem: don’t ask people to save part
of the paychecks they’re holding in their
hands today. Instead, let them decide now
to save starting with their next paycheck.
Thaler, along with UCLA’s Shlomo Benartzi,
has called this the Save More Tomorrow
plan, and a key feature is that workers
are approached to make their retirement
savings decisions several months before
a scheduled raise. Because their decision
concerns income that they won’t receive
for several months, people find it much
easier to part with the money. Thaler likens
it, in a 2002 article in Capital Ideas, to the
difference between the difficulty of passing
up the dessert sitting in front of you right
now and agreeing today to forego the same
dessert in three months—you may have
good intentions in both cases, but it takes
a lot more willpower to follow through when
the reward is immediate.
In addition, the plan encourages
workers to have their contribution grow
automatically each time they get a sched-
uled raise, so they only have to make the
difficult decision once, instead of being
forced to revisit it. And it doesn’t hurt that
the decision to increase savings coincides
with a raise—that way, even though people
are saving more, their take-home pay never
With this approach, people aren’t
forced to do anything. Rather, a person is
merely pursuing her own plan without the
interference of weak willpower. People want
to save more but find it’s hard to do it right
now. As Saint Augustine said: “Grant me
chastity, but not yet.”
Additional reading
Richard H. Thaler and Shlomo
Benartzi, “Save More Tomorrow:
Using Behavioral Economics to
Increase Employee Saving,” Journal
of Political Economy, 2004.
Richard H. Thaler and Cass R.
Sunstein, Nudge: Improving
Decisions about Health, Wealth, and
Happiness, Yale University Press:
“Save More Tomorrow: A Simple
Plan to Increase Retirement Saving,”
Capital Ideas, 2002.
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