There are Free Lunches Statement of Intentions

There are Free Lunches: Behavioral Clues to Live Happy in the Economic World is a blog that intends to present updated and relevant information about the "hidden" and only recently uncovered dimensions of the economic science: the behavioral factors. With this blog we intend to promote in Europe and in the rest of the World, the top research articles and perspectives on behavioral economics, decision making, consumer behavior, and general behavioral science. We aim to be followed by journalists, academics, managers, civil servants, and everyone who wishes to improve their daily interaction with the economic world and consequently, their lives' happiness.

Sunday, 15 May 2011

Principle 5: Pay Now and Consume Later

The shift toward immediate enjoyment and delayed payment represents a fundamental change in our economic system that undermines well-being in two important ways. The first and most obvious is that the “consume now and pay later” heuristic leads people to engage in shortsighted behavior—to rack up debts, to save little for retirement, etc. In the end, the piper must be paid, and when that happens, lives are often ruined. Vast literatures on delay of gratification, intertemporal choice, and delay discounting show that when people are impatient, they end up less well off. But there is a second reason why “consume now, pay later” is a bad idea: it eliminates anticipation, and anticipation is a source of “free” happiness. The person who buys a cookie and eats it right away may get X units of pleasure from it, but the person who saves the cookie until later gets X units of pleasure when it is eventually eaten plus all the additional pleasure of looking forward to the event. Of course, memory can be a powerful source of happiness too, and if anticipation and reminiscence were equal partners in promoting pleasure then there would be no reason to delay consumption because each day of looking forward could simply be traded for a day of looking backward. There is reason to believe, however, that anticipation is the Batman to the Robin of reminiscence. Research shows that thinking about future events triggers stronger emotions than thinking about the same events in the past. For example, students felt happier while anticipating an upcoming vacation than while reminiscing about the same vacation and bought a more expensive thank-you gift for someone who was going to do them a favor than for someone who had already done them a favor. Just as positive events that lie in the future seem better than the same events in the past, negative events that lie in the future appear worse than those in the past: mock-jurors awarded more money to an accident victim who was going to suffer for a year than who had already suffered for a year. Why, then, does consumer behavior so often reflect an apparent drive for immediate consumption? it is suggest that while the future may be more emotionally compelling than the past, nothing is as powerful as the present. Indeed, people exhibit future anhedonia, believing that their emotional responses will be less intense in the future than in the present. For example, participants believed that they would experience more pleasure on the day they received a gift if it were delivered today rather than three months later. If future feelings really were less intense than present feelings, then one could maximize benefits by consuming in the present (when the pleasure of consumption is at its zenith) and paying in the future (when the pain of paying is at its nadir). Of course, future feelings are not less intense than current ones, and thus future anhedonia is an affective forecasting error that causes people to consume immediately and thus miss out on the pleasures of anticipation.

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