Economists on How To Make Better New Year’s Resolutions

The search for better economic policy.
Dec. 31 2012 5:15 AM

How To Make Better New Year’s Resolutions

Vow to do less, not more.

Thirty something Man Lying Asleep on a Sofa in an Apartment.
When busy people get busier, it leads to a vicious cycle of falling further and further behind

Photograph by Digital Vision/Thinkstock.

It’s that season again, when we resolve to accomplish a list of goals in the coming year. Not infrequently, these are the goals that we were resolved to accomplish during the preceding year.

If you were to ask Princeton psychologist Eldar Shafir or Harvard economist Sendhil Mullainathan for a better New Year’s strategy, they’d likely suggest that the best resolution you can make is to do fewer things in 2013. The researchers argue that when busy people get busier, it leads to ignored deadlines, a cluttered desk, and a vicious cycle of falling further and further behind. Amid the disorder, a lot of bad decisions get made, and the best means of escape from this cycle may be a moratorium on new obligations.

Shafir and Mullainathan are leaders in the field of behavioral economics, which aims to apply insights from psychology to the study of economic decision-making. In their recent work, summarized in the forthcoming book, Scarcity: Why Having Too Little Means So Much, they use behavioral economics to explain why conditions of scarcity—whether of time or money—often lead people to make bad decisions.

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Mullainathan and Shafir describe the problem of managing money as being akin to packing a suitcase. Someone with plenty of time has a near-empty suitcase. It requires little attention or effort to decide whether to go to a movie on the spur of the moment. By contrast, those with crowded schedules have a full suitcase: Adding a new item means removing something that’s already been packed. Deciding how to rearrange your metaphorical suitcase takes time and energy and can lead to stress and sleepless nights. Indeed, the shortage of space itself can be responsible for bad decisions that, in turn, only make the problem worse.

This may sound counter to your own experiences. Some people feel they’re at their most productive when work has piled up and deadlines are looming. Mullainathan and Shafir wouldn’t disagree. But they caution that these pressures cause what they call “tunneling”: a laser-like focus on the tasks immediately at hand, which often results in a disregard for the bigger picture. You may be focusing on that deadline at the expense of your long-term happiness.

It’s not that the poor don’t think enough about money, or the busy about their time—it’s that they think about it too much. Shafir likes to cite a survey the researchers did at Boston’s South Station. They asked arriving train passengers what the starting fare is on Boston taxis. Rich travelers take more cabs than poor ones, but low-income respondents were much more likely to know what it costs to take a cab, because in thinking about the decision between taking a cab or a bus, a couple of dollars one way or another really matters. This attentiveness ensures that they have enough cash to finish the day, but all of these immediate distractions—deciding whether to buy a muffin or some other minor indulgences; comparison shopping cereal brands; calculating and recalculating expected expenses against a dwindling bank balance—threatens to leave no mental space to consider the bigger picture of managing finances for the long-term. (The time-scarce similarly expend so much effort dealing with the minutiae of getting through the day that they fail to think about making their lives less harried and more productive in the future.)

Mullainathan, Shafir, and a number of other researchers have been running lab experiments to understand the impact of time pressures on decision-making. Together with University of Chicago psychologist Anuj Shah, they ran a lab experiment based on the old game show Family Feud, using Princeton undergraduates as their subjects. “Contestants” were asked to name items that belong to categories like “Things Barbie could auction off if she needed money fast.” The responses were a matter of subjective judgment rather than fact; the “right” answers were those that had been most popular among 100 random Americans who were surveyed prior to the “show.” For example, the answer “Barbie’s dream car” earns 35 points because 35 out of the 100 people had offered that as an answer. The contestants were given only a few seconds to come up with a set of answers. But some experienced more scarcity than others: “Rich” ones had more time for each round than “poor” ones.

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