Hit the gym, or the couch?
Save for retirement, or spend the whole paycheck?
Choose the chips, or the rice cakes?
Most people are going for the chips, according to David Laibson, a Harvard economist who recently presented some of his work on how people make choices at the annual meeting of the American Association for the Advancement of Science.
Laibson’s research consistently finds that people have a hard time turning their good intentions into action. He also discovered that conventional interventions, such as providing education and even financial incentives, don’t necessarily help.
For example, Laibson counted only a 0.1 percent increase in employees saving in a 401(k) plan, even when study subjects were paid to listen to presentations about the benefits.
In another study, Laibson gave subjects the choice between eating a piece of fruit and chocolate. He learned if the subjects were told they would receive the fruit or chocolate in a week, they would choose the fruit. But if it was to be delivered the same day, they invariably chose the chocolate.
“The problem is the difference between good intentions for the future, and the reward today,” he said. “If you get the reward today, you give it full weight. A reward in the future gets half the weight.”
“The story with our diet, our savings, our exercise is we have terrible follow-through. So what do we do?”
There is good news.
Laibson’s experiments also showed that taking even small concrete steps toward a goal significantly increased the chances of meeting it. Even better was to start out in the right place, and have to undo it in order to fail.
Consider the 401(k) savings plan choice.
Laibson found that by putting the study subjects in a retirement plan on an opt-out basis (so that the employees had to sign a form to drop out), participation rates of those not already enrolled zoomed above 90 percent — and stayed there. Even two years later, rates were above 88 percent.
“It makes all the difference if you start out in the right place,” Laibson said.
In another experiment, study subjects were mailed letters encouraging them to have colonoscopy screenings. Just 33 percent of those who received the letter made an appointment. But the researchers found that if they included a sticky note with blanks for a date and time to be filled in by the subject, screening appointments rose to 37 percent.
“Not a huge difference, but all we did was add a few drops of ink to the mailer and it drove participation up by about 10 percent,” said Laibson “Using nudges, we can transform good intentions into taking actions.”