Dan Ariely is an award-winning author, professor at Duke University and wonderful explainer of behavioral economics (and someone I look forward to meeting on Monday night!). I came across this interview with him on this great website on Longreads.com (I love that they estimate the time needed to read it, which is 14 minutes).

Here are some snippets I found applicable to our work as educators:

On why it is so difficult to be motivated by long-term goals (we have all struggled with this when we talk 401(k) plans with high schoolers):

I think that the first thing to recognize is how difficult it is to be motivated about things that will happen in the long term. It’s almost inhumane. And this includes all kinds of things that we need to motivate ourselves to do. There are very few projects that we’ll finish in a month. Everything that we do for our health is about the long-term. But the long-term is just not that motivating because we just do effort, effort, effort, effort—and nothing good comes from it. So what can we do? We can hope, which is what physicians often do—they tell patients, “Oh, you just need to take this medication because otherwise you’ll die from something.” And we can hope that that will be sufficient. The problem is, it’s just not.

Three solutions to short-termism:

1. Rules of Thumb: “The first solution is: We’ll just pick a rule and you will not think about it, you will not ponder it, you will just obey the rule and that’s it. This helps in some cases. Think about if you are religious: lots of things are dictated for you. If you are Hindu, you don’t eat meat. You don’t have to wonder about this. But if you’re a vegetarian, you could say to yourself, “Let me be vegetarian 85 percent of the time.” What would happen if that’s the rule that you set for yourself? You would fail. You would not fail all the time, but you would fail often, because it’s hard to keep a rule that is about 85 percent of the time. So people basically become vegetarians all the time and it’s an easier thing to stick to, to say I never eat meat. It’s all about all or none. I always do this, I never do that.”
2. Reward Substitution: “The second solution is what we call reward substitution. We say that the real objective that we have is just too far off and is not sufficiently motivating. So instead, we find another goal that is not about the long-term goal, it’s about something that is shorter, but it will get us to behave as if we care about the long term. A lot of what we call gamification falls into this category. Gamification is basically saying, “Let me give you points for behaving well, and by pursuing points, you will behave as if you care about your health”—or whatever it is.”
3. Ulysses contract: “The third one is what you call a Ulysses contract: We constrain our behavior now to force ourselves to do something in the future. For example, have you ever made an appointment with a trainer in the gym and paid in advance, and if you didn’t show up, you couldn’t get the money back?…It’s called a Ulysses contract because if you remember Ulysses, he asks the sailors to tie him to the mast so he can’t follow the Sirens.”

Questions for your students to ponder:

• What are some rules of thumb that they can think of that might help them achieve long-term goals:
  • Examples
    • Save 10% of your income
    • Don’t have fixed costs greater than 50% of your taxable income (courtesy of Jonathan Clements)
    • Student loan debt should not exceed your expected first year salary coming out of college
• Examples of reward substitution in their lives? How can they set intermediate goals that are less “painful” than long-term goals?
• Have they ever created a Ulysses contract with themselves?
  • Here are some examples from Bogleheads; have students pick 2-3 that they think might work for them.

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Interested in behavioral economics? Be sure to check out the first five videos in the NGPF Video library to learn more about this topic.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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