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Thursday, 20 October 2011

The Secret of a Healthy, Wealthy Life

Infantile People

People, we know, generally aren’t very good with money. They don’t save enough, are inclined to procrastinate over saving for the distant future and are easily induced to splash out for instant gratification using the plastic. All of which has led psychologists and governments to start trying to use psychology to manipulate citizen’s behaviour in their own best interests.

Yet what’s interesting is that there is a small, but significant, group of people who overcome these problems with apparent ease. Not only are they better with money but they’re more likely to form lasting relationships, avoid criminal convictions and annoy everyone with their all round smugness. What’s even more interesting is that there’s a simple way of picking out these people from the age of four: and all you need is a couple of marshmallows.

Marshmallow Test

The marshmallow test is hallowed ground for social scientists, proof that we’re not entirely wasting our time trying to predict human behaviour. It’s a test of self-control: a four year old is offered the option of a marshmallow now or two later. To gain the extra sweetie they have to wait an indefinite period of time – usually fifteen or twenty minutes in actuality – and unsurprisingly most can’t manage this.

However, nearly a third of children do manage to wait long enough for the additional treat and this effortful exercise in self-control turns out to be amazingly predictive of future life chances. Terrie Moffitt, Avshalom Caspi and colleagues have carried out a longitudinal study – following a group of 1,000 children into adulthood – examining their subsequent successes and failures. As Duckworth reports in The Significance of Self Control:
“[Moffitt et all’s] major finding is that self-control measured with observer, parent, teacher, and self-report ratings during the first decade of life predicts income, savings behavior, financial security, occupational prestige, physical and mental health, substance use, and (lack of) criminal convictions, among other outcomes, in adulthood. Remarkably, the predictive power of self-control is comparable to that of either general intelligence or family socioeconomic status.”
These results hold even when adjusted for individual intelligence, social class and their home environments. Kids with low levels of self-control are more likely as adolescents to smoke, leave school early and have unplanned babies. As young adults they’re more likely to have health problems, money issues and criminal records. The study, so far, has only reached their early thirties, so what they’ll look like as old people is as yet unknown: but a good guess is that more of them will die younger than their better controlled cohort.

Lacking Control

Leaving aside all of the implications for this it’s worth standing back from the research and thinking quite hard about what this means. That this simple test, applied to your four year old, is strikingly predictive of their future life chances is quite extraordinary when you consider the confusion and lack of coherence in most of the findings of psychology and economics.

The original marshmallow study was done by Walter Mischel as an interesting piece of child development work, on children in his own son’s school. It was only by accident, as the children grew older, that he noticed that the results of the self-control tests on four year olds seemed to be correlated with their subsequent successes and failures:
"Occasionally Mischel would ask his three daughters ... about their friends from nursery school. “It was really just idle dinnertime conversation,” he says. “I’d ask them, ‘How’s Jane? How’s Eric? How are they doing in school?’ ” Mischel began to notice a link between the children’s academic performance as teen-agers and their ability to wait for the second marshmallow. He asked his daughters to assess their friends academically on a scale of zero to five. Comparing these ratings with the original data set, he saw a correlation. “That’s when I realized I had to do this seriously,” he says."

The implications are profound, because the findings suggest that early age intervention with children who have low levels of self-control may improve their later life chances. Unlike many behavioral issues, which seem to be almost unconscious, self-control is an area where we can improve and, indeed, is one of the few things we naturally get better at as we get older.

Can’t Be Bothered

The research also lies behind the behavioral interventionist policies that some governments are now introducing, based on the nudge ideas of Thaler and Sunstein. At root the argument here is that most people are so feckless and lacking in self-control that they can’t even be bothered to opt-out of schemes that they certainly wouldn’t bother to opt-in to.

Arguments against nudge techniques, which we’ve looked at before, really revolve around who makes the decisions and whether it’s a restriction of freedom for people to be manipulated in this way. Yet it’s possible to argue, as Shoda, Mischel and Peake point out, that the ability to exercise self-control and delay gratification is, in effect, a definition of human choice:
“Unless children are able to sustain delay for desired goals when they want to, their freedom to make that choice becomes illusory”.
Basically if you don’t have the ability to exercise self-control you don’t really have the ability to make choices anyway, so any arguments to the effect that this is an infringement of freedom are pretty irrelevant: you can’t take away something that someone doesn’t have anyway.

Rational Corporations

Given all of this rampant irrationality you might expect that more rational market participants would seek to take advantage of it: after all, governments are exploiting our biases to make us less of a burden on the public purse, not simply for our own good. More commercial operators might be even more cynical in their exploitation of humanity’s general lack of self-control.

Indeed, this turns out to be the case, across a wide range of businesses. DellaVigna and Malmendier looked at this in Contract Design and Self Control and found a wide range of methods to separate the feckless and their dwindling cash piles. They uncovered evidence of contract design to exploit these biases in:
“The credit card, gambling, health club, mail order, mobile phone and vacation time sharing industries”.
The range of industries implicated is probably only limited by researchers not having enough time to look elsewhere. This behavior is everywhere.

As an example, consider the health club industry. Here’s a situation that requires lots of up-front investment and effort with a pay-off that is months, if not years away. For the average, weak willed individual, the best solution would be to pay per visit, yet the majority of users pay annual contracts which automatically renew and rarely use the clubs after an initial burst of interest. It would be easy for health clubs to charge on a per visit basis, but rationally, if cynically, they’re maximising their revenues while exploiting the lack of self-control and overconfidence of their customers.

Health and Wealth

This type of rational contract design is commonplace, and generally follows the kind of rational economic models that the traditional theory would expect. Individuals, on the other hand, are irrational and behaviorally driven and offer themselves up for exploitation. We shouldn’t expect morally neutral corporations to pass up on such an offer. In effect, many of the contracts are designed to use the “opt-in” approach to extract money from the weak-willed amongst us, by using automated renewal, back-loaded fees or artificially inflated switching costs. If consumers were rational then these features wouldn’t work and firms would stop using them, because they increase their costs.

Self-control, then, seems to be implicated in a whole host of life choices and has effects that stretch out into virtually all aspects of our interactions with corporations. For parents, though, this research offers a glimmer of hope: lack of self-control can be detected early and interventions can improve our children’s opportunities significantly. Time to break open the marshmallows and start testing your four year olds.




Related articles:
Putting Down the Credit Cards, Retirees, Procrastinate at Your Peril, Save More ... Tomorrow

3 comments:

SteveD said...

I see nowhere in your otherwise wonderful article that proves or shows that we can improve our self control.

timarr said...

Hi SteveD

Thank you. You're right, of course, this doesn't deal with how to improve self-control. In children (which this article is mainly about) there are some successful methods, which often sound a lot like proper parenting: setting boundaries, establishing future rewards for current good behavior, and so on.

For adults it's much, much more difficult: self-awareness is a good place to start, but even then behavioral biases tend to get in the way (to be honest this blog is really one, long argument about exactly these points). The article on Save More ... Tomorrow talks about some of the nudge techniques being used and I've another one in prep which looks at using technology for this purpose. But mostly people won't even admit they have a problem.

So if you don't learn the skill as a child then it gets darned difficult as an adult. Which is why "nudge" techniques are so in vogue: they're about using people's behavioral biases to help them behave better. Of course, this leads to the problem of who decides what's "better"?

Anonymous said...

Interesting article and experiment. May be useful if people don't change with time and environment because of internal/external factors.