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Whether dieting, exercising, turning off American Idol to read that book on our side table or spending versus saving, maintaining focus on our resolutions is a universal issue. While attending the American Economic Association meeting in early January, I had three conversations with leading academics concerning experiments to help people stick to their plans, including one that tripled savings rates among employees.
The burgeoning discipline of behavioral economics is behind those strategies that overcome the temptations and obstacles that deflect us and our clients from our plans. Behavioral economics advocates, such as Princeton’s Daniel Kahneman, Chicago’s Richard Thaler and Yale’s Robert Shiller have conducted field experiments to test how people behave in real world -– and have found very big gaps between the perfectly rational behavior assumed by theoretical models and what actually happens.
Make the benefits of long-term goals more real
Late last year, there were newspaper reports of a research study in which recent college graduates were shown their photograph digitally aged – so that they looked like their grandparents.
After a few minutes with this photo, they answered a questionnaire on savings intentions; those who spent time with their aged self were willing to save twice as much for retirement as those who hadn’t seen themselves in their advanced years.
This is what happens when you make the benefits of saving for retirement more vivid.
Another experiment currently underway examines the impact of financial advisors spending 10 to 15 minutes asking clients questions about their lifestyle in retirement – what their day will look like, the leisure activities they’ll pursue, the restaurants they’ll enjoy, the travel and vacations they’ll go on. Early results indicate that those investors who are asked to provide a detailed picture of their lifestyle are prepared to commit to more ambitious savings and investment plans and are more likely to stick to those plans than those who haven’t gone through this process.
This Wall Street Journal article provides more information on the research being done to measure the impact when people visualize life in a different state.