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The Present Bias Booby Trap

You're not irrational. Your mental math is skewed.

Sarah Newcomb 12 November, 2019 | 13:59

Behavioral scientists like to talk about how some human decisions are “predictably irrational,” meaning that they aren’t objectively the best choice, but we persist in them anyway. For example, why do so many of us put off saving and investing for tomorrow in favor of buying more stuff today? Why don’t we seem to care enough about retirement savings until it’s too late to catch up? Why is the immediate so much more important to us than the far-off? Are we really just irrational creatures?

I don’t think so. I think we really try to do an honest-to-goodness cost-benefit analysis. The problem is in how we picture trade-offs, mentally.

It’s All in Your Head
Anytime you decide between two things, you create a model of the scenario in your mind. You think about what will happen if you do A, and what would happen if you do B. You look at outcomes A and B side by side, and you decide which one you want the most. This is all completely straightforward and rational.

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About Author

Sarah Newcomb

Sarah Newcomb  Sarah Newcomb is a behavioral economist with Morningstar.

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