Time inconsistency at the heart of our bad choices

What's the most intelligent animal on the planet? It all depends on the definition of intelligence, of course, but most people would answer that humans are at the top of the intelligence pyramid. It's easy to conclude this by citing our constructions, our technologies, our adaptation to various elements, and so on. But are we as superior as we think? Psychological research has shown that we can easily be manipulated. There's even a field specifically designed to get people to buy or attend an event: marketing.

We have huge thinking biases. These lead us to communicate inadequately with our peers and to make questionable choices. In fact, economic experts have focused on a phenomenon that affects financial decisions as much as anything else: dynamic inconsistency.

The inability to think long-term

A classic choice can be described as follows: people are asked whether they would prefer to receive 500 dollars today or 505 the next day, and the same people are offered 500 dollars in a year's time or 505 in a year and a day's time. Logic would dictate that the choice should be between the two, but it's not. Most respondents will say "500" the same day and "505" a year and a day from now. Researchers have noticed similar patterns of thinking in financial risk experiments. They believed that people would take more risks in scenarios where they achieved gains and would wish to stop after a few monetary losses. However, the opposite was true: the more they lost, the more they continued to risk.

Why was this? Specialists note two main reasons for the time inconsistency. First, there's the present bias: we're naturally inclined to choose things that satisfy our immediate needs. Thus, most of our choices are made with the idea of obtaining a gain as quickly as possible in mind. This is compounded by two other effects: we're very bad at predicting the future, and we're quick to forget the past. This can be seen, for example, in holidaymakers who decide to go to a place where they've had an awful experience more than once; the recurrence of the choice not being frequent enough and the inability to remember the impression left by the place will lead to making the same mistakes again.

Effects on policy

If these inconsistencies have more or less significant consequences on our personal lives, they have far more when the public sphere, including the political one, acts with the same biases.

We 've known for decades that unlimited economic growth will have effects on the environment, among other things. Yet as soon as a government makes a decision, the economic aspect becomes more central than the medium- and long-term effects of that decision. Because there are election deadlines, because quick wins are more attractive than thinking about the repercussions, and because they tend to downplay the potential consequences. Above all, they know that citizens have the same bias, and won't have the hindsight to analyze political decisions; they'll be blinded by money made, jobs, GDP and other factors which, while not inconsequential, hide the long-term effects.

That's the dilemma we face today more than ever in many parts of the world. Those with hindsight or strong environmentalist values are calling for firm changes and major transformations in the coming years to prevent the worst-case scenarios from becoming reality. Even if we choose the path of the green economy, it creates an ecological footprint whether we like it or not. So, tomorrow's economists and politicians will have to think about the decisions they have to make: to continue greening the economy, or to transform it so that it respects the ceiling of available resources?

The choices will be crucial, and they will need to be aware of the time-inconsistency bias and go beyond it. This also means trying to counter the bias of people in general. Of course, it would be possible to use the sugar-cube technique to make people swallow the remedy, as central banks do, for example, in a partial attempt to control the population's financial movements. Except that these lies, though white, could backfire on the messengers if they were to be unmasked.

Perhaps it's better to go head-on. Not to hide the reality that certain decisions won't be pleasant at the time, but will lead to healthier environments, neighborhoods, management and other factors in the not-too-distant future. But given the credibility deficit that politicians often have, it seems that it will be difficult to convince people. But we'll have to do it one day, especially as the results of our actions are beginning to be felt in our daily lives.

Image : Mohamed Hassan from Pixabay

References

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