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Easynomics💸: How economics and psychology can help you stick to your new year’s resolution

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Easynomics💸: How economics and psychology can help you stick to your new year’s resolution 1
Friday, 31 Dec 2021
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Easynomics💸: How economics and psychology can help you stick to your new year’s resolution 2
By Vivek Kaul

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How economics and psychology can help you stick to your new year’s resolution

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Today is the last day of the year. And if you are like how others around you are, you must have already made a new year’s resolution by now. Things need to change on a particular front of your life, and 1 January is a good day to start making it.

The trouble is, new year resolutions are like opinions; everybody has one. While opinions may last for a lifetime, many new year resolutions tend to fizzle out in a matter of a few weeks, if not months. Be it the resolution to exercise more and lose weight or spend less and save more money or give up on smoking or any other habit for that matter. These resolutions do not last long.

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While making resolutions, people are often very optimistic and confident about exercising to lose weight or spending less and saving more. As David Orrell writes in Behavioural Economcis –Psychology, Neuroscience, and the Human Side of Economics: “Behavioural economics shows that people tend to be overly optimistic about their degree of control, so pick too ambitious a target.” But then very quickly a present bias tends to kick in.

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There is a certain pleasure in not exercising now (ask me!). Also, there is greater pleasure in spending money now, enjoying the best things that consumerism offers, and keeping up with the Sharmas, the Iyers, the Reddys and the Agarwals.

And of course, there is an immense pleasure in smoking a cigarette now and getting those grey cells of yours going, which are just unable to think otherwise. (Or if you work in a corporate setting, smoking is a social thing where you keep up with the boys and girls and have a first-hand view of what is happening in the organization).

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While the pleasure and/or benefits in each of these cases are immediate, the consequences or the risk that things might blow up in the face are long-term. Of course, the fact that we give up on new year resolutions as quickly as we do also suggests a lack of self-control, which leads us to procrastinate on things to do them on some other day.

So, are there ways to ensure that we can implement our new year resolutions? How do we tackle the procrastination habit and, in the process diluting the new year resolutions we make?

Economists and psychologists, like they tend to do, have thought about this problem and may have a solution to offer. But before we get into that, let’s take a slight detour.

The Zeigarnik Effect

Bluma Zeigarnik was a Lithuanian-Soviet psychologist and psychiatrist who lived through most of the 20th century, having died in 1988 at 87.

Richard Wiseman recounts a fascinating story about her in 59 Seconds – Think a Little, Change a Lot. According to research lore, sometime in the 1920s, Zeigarnik, who was then a psychology graduate, was having coffee with her supervisor in a café in Vienna.

Being curious people, they were watching how the waiters were behaving. When any customer asked for a bill, the waiters remembered what was ordered. But a few moments after the bill was paid, the waiters struggled to remember what the customer had ordered.

This was a peculiar phenomenon. As Wiseman writes in 59 Seconds: “It seemed that the act of paying for the meal brought a sense of closure as far as the waiters were concerned, and erased the order from their memories.”

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This got Zeigarnik interested. She decided to design an experiment around this interesting phenomenon. She asked people to carry out simple tasks like stacking wooden blocks or placing toys in a box. Sometimes, she stopped the people who were taking part in the experiment before they had finished the task that had been assigned to them.

Once the experiment ended, the people taking part in the experiment were asked to describe the tasks they had carried out. And Zeigarnik found that unfinished tasks remained stuck in people’s minds and thus were easier to remember. Hence, if you are doing something and are thwarted from completing that activity, the anxious mind will nag you until you have achieved what you were doing.

Herein lies a practical lesson for those who procrastinate implementing the new year resolutions they have made. As Wiseman writes: “Procrastinators frequently put off starting certain activities because they are overwhelmed by the size of the job in front of them. However, if they can be persuaded, or can persuade themselves, to work on the activity for “just a few minutes,” they often feel an urge to see it through to completion. Research shows that the “just a few minutes” rule is a highly effective way of beating procrastination and could help people finish the most arduous of tasks.”

This is a tactic I often use on days when I get up in the morning and don’t feel like writing but, nonetheless, have a deadline to meet. I force myself to start writing for a few minutes, and then the mental process takes over, and I meet the deadline.

What does this mean in the context of new year resolutions?

Let’s say you want to lose weight and have a habit of procrastinating. If you can motivate yourself to exercise for even a few minutes, you will be likely to complete the routine. Also, it makes sense to set small goals. There is no point in setting up a time at the local gym, which is 2 km away, and you are supposed to drive there every day.

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While a 2 km drive does sound easy-peasy, there are multiple steps involved, from taking the vehicle out of the building/house you stay in, driving it through traffic, to figuring out a parking space around the gym (if the gym doesn’t have one). Hence, it makes sense to start with walking, probably around the building you stay in, in the nearby park and so on.

Of course, this solution doesn’t really help if you to want to spend less and save more or are just very lazy about exercising to lose weight. What can be done then?

The Commitment Contract

Thomas Schelling, who won the Nobel Prize in economics in 2005, came up with the concept of a commitment contract. Schelling describes this concept in his book The Strategy of Conflict, where he writes: “What are the devices by which one gets committed to fulfilment that he would otherwise be known to shrink from, considering that if a commitment makes the threat credible enough to be effective, it need not be carried out.”

This is an economist writing like an economist. But at its heart, the concept is very simple. The economist Steven Levitt, who was Schelling’s student, describes it in an easy way on his blog. Schelling offered two pieces of advice to those trying to lose weight. One was to empty out the refrigerator, so there is no temptation food lying around, and that one might want to eat. So, if chocolate is your comfort food and you have a lot of it lying around in your refrigerator, it is time to get rid of it.

Honestly, following this is now a lot more difficult than perhaps when Schelling gave this advice. Food can be ordered sitting at home from the best restaurants near where you live. And chocolate and soft drinks and all kinds of fattening food can be ordered and will be delivered within 10 minutes, which is why Schelling’s second piece of advice becomes very important.

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It was to write a cheque of a substantial amount to the American Nazi Party, put it in an envelope, and be ready to mail it to them if the diet routine isn’t followed. This was a commitment contract. In an Indian context, this would mean supporting the political party that you really really hate.

In fact, Schelling’s insight on weight-loss has been turned into a business by two professors at the Yale University. As Orrell writes: “The company stickK was started by Yale University professors Dean Karlan and Ian Ayres in 2007. Users select a goal, such as losing a certain amount of weight, and enter a contract where they agree to pay a certain amount, e.g. to charity (or even an organization they hate) if they fail to meet the goal.”

Something similar can be applied by those trying to give up smoking. They can commit to giving up smoking in front of people they care about. They can also have a cheque ready in favour of a political party or a social organization they don’t like and have this cheque placed with a friend, who can immediately mail it, the moment the no-smoking commitment is broken. The possibility of experiencing pain because of loss of money, essentially leads to more skin in the game and in the process, people trying harder to achieve what they set out to.

Also, it might just help more to be around people who don’t smoke.

How does this work in the context of saving money?

Dan Ariely has a unique solution for this problem in his book Predictably Irrational—The Hidden Forces that Shape Our Decisions: “You put your credit card into a glass of water and put the glass in the freezer. Then, when you impulsively decide to make a purchase, you must first wait for the ice to thaw before extracting the card. By then, your compulsion to purchase has subsided.”

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I follow a version of this strategy while buying books. My temptation to buy a book is at its peak before I go to sleep. On good days I can convince myself to go to sleep and then think about buying the book in the morning if the temptation still exists. On most days, it is gone.

While this may solve the spending problem, it doesn’t lead to savings. Hence, it is important to be pre-committed to savings through systematic investment plans (SIPs) and regularly invest in mutual funds or start a recurring deposit, where money is directly debited from the bank account every month. Actually, it makes sense to do both. If there is no money in the bank account on the day the SIP or the recurring deposit is to be executed, there will be financial consequences. People can also take the voluntary provident fund route and save more in the process.

At a simpler level, carry cash around with you and not cards. If you feel the urge to spend, spending cash is more painful than digitally spending money. That might hold you back. Also, there is only so much cash that you can carry around.

Ariely has an interesting idea to control spending; a self-control credit card. The idea is that a credit card comes with a limited amount of money loaded onto it. Also, the users can set limits on the amount of money they want to spend on different kinds of things in advance. Like, not more than Rs 1,000 a month on coffee. Or not more than Rs 2,000 a month on buying clothes and so on.

As Ariely writes: “For instance, they could make the card get rejected; or they could tax themselves and transfer the tax to Habitat for Humanity, a friend, or long-term savings. This system could also implement the “ice glass” method as a cooling-off period for large items; and it could even automatically trigger an e-mail to your spouse, your mother, or a friend.”

Of course, no bank currently offers such a credit card (at least not in my knowledge), but parts of the idea can be implemented. Like every month, you could share your credit card statement with someone who you trust and who you know wouldn’t judge you for overspending, but, nonetheless, would remind you not to go down that path again. You could also ensure that spending notifications go to your spouse’s email.

These are a few things that can be done to follow new year resolutions. Of course, in any subject where human beings and their feelings are involved, the solutions can’t be 100%.

And most importantly, a new year will come next year and the year after that and the year after that as well. So, if the coming year doesn’t work, you always have the year after that to make newer or similar resolutions.

The years won’t be in short supply until you run out of them.

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Written by Vivek Kaul. Edited by Saikat Chatterjee. Produced by Nirmalya Dutta. Send in your feedback to newsletterskatanalivemint.com.

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