External interventions can help an individual curb excessive consumption by providing an opportunity to pause and think about consumption.
By Dilip Soman, Jing Xu and Amar Cheema
Some of the toughest decisions in life are so-called ‘should vs. want’ decisions. John should be saving money for the future, but the temptation of a hot cup of cappuccino creates a want that distracts him from his savings goal. Paula knows that she should be exercising at the gym, but she would rather spend the time with her friends at the movies. George knows that he should be eating the healthy granola for breakfast, but his desire for a meat-lovers omelet gets the best of him. These are just a few examples of the kind of decisions that have long challenged individuals and intrigued researchers. It is not that people don’t know what they should be doing; they simply behave in a seemingly irrational manner when faced with a tempting consumption opportunity.
Researchers have proposed numerous theoretical accounts to explain such behaviour. One such account is the Dual Processing Model, exemplified by the work of Richard Thaler and Hersh Shefrin. Writing in the Journal of Political Economy, the authors propose that each individual is actually an ‘organization’ consisting of two entities, the ‘planner’ and the ‘doer’. The planner is foresighted, realizes the consequences of current decisions and hence charts out an optimal path for the individual. The doer, on the other hand, lives in the moment and is myopic, and pushes the individual to pick the alternative that gives them the greatest value in the present.
In Thaler and Shefrin’s model, the planner controls the doer’s desire through willpower. In general, the model suggests that when people are asked about their preferences, their planner comes forth and they respond with a should option. However, when they are faced with a tempting opportunity, the doer comes forth and pushes the individual towards the want option. The term ‘should option’ applies not only to options that maximize an individual’s future well-being, but also to those that improve social well-being. For instance, one should not keep the air-conditioning running beyond what is necessary to stay comfortable, yet many people leave their units on all summer long. Likewise, one should conserve fuel and take public transit when available, but when the time comes, the comfort of a car is hard to give up.
A second theoretical account that has often been used to explain how individuals make should vs. want choices is the Theory of Hyperbolic Discounting. At the heart of this theory is the idea that people pervasively de-value the future and tend to prefer a ‘smaller/sooner’ reward (SS) over a ‘larger/later’ one (LL). This can be best explained by the Theory of Hyperbolic Discounting, which says that the value of future outcomes is discounted very steeply very close in time to the outcome, but more gently further away. As a result, when an individual sees a choice between SS and LL options in the future, they are both discounted greatly and hence the present value of LL appears greater than the present value of SS. And that is why people who view the two options from the present choose the LL reward over the SS reward. However, when one gets very close in time to SS, the perceived value of SS is now larger than the perceived value of LL.
Note that the concept of SS and LL rewards is a handy metaphor for should vs. want options. For instance, in the domain of eating, SS might represent a tempting chocolate cake while LL might represent better long-term health. Consumption of indulgences in moderation is good for our well-being; the trick is to keep the consumption in moderation. The greater trick, therefore, is to design effective stopping rules for consumption.
In short, a decision point is any intervention that is designed to get an individual to ‘pause and think’ about the consumption they are currently engaged in. There are a number of ways in which decision points can be created, but there are three broad methods:
1. inserting transaction costs (which work on the premise that requiring the individual to take a positive action makes them deliberate on the consumption decision);
2. providing reminders or information (which work on the premise that drawing attention to a neglected activity can provide the impetus to get it done with); and
3. creating interruptions to the consumption activity (which work on the premise that the interruption allows the individual to pause and think).
By Dilip Soman, Jing Xu and Amar Cheema
Some of the toughest decisions in life are so-called ‘should vs. want’ decisions. John should be saving money for the future, but the temptation of a hot cup of cappuccino creates a want that distracts him from his savings goal. Paula knows that she should be exercising at the gym, but she would rather spend the time with her friends at the movies. George knows that he should be eating the healthy granola for breakfast, but his desire for a meat-lovers omelet gets the best of him. These are just a few examples of the kind of decisions that have long challenged individuals and intrigued researchers. It is not that people don’t know what they should be doing; they simply behave in a seemingly irrational manner when faced with a tempting consumption opportunity.
Researchers have proposed numerous theoretical accounts to explain such behaviour. One such account is the Dual Processing Model, exemplified by the work of Richard Thaler and Hersh Shefrin. Writing in the Journal of Political Economy, the authors propose that each individual is actually an ‘organization’ consisting of two entities, the ‘planner’ and the ‘doer’. The planner is foresighted, realizes the consequences of current decisions and hence charts out an optimal path for the individual. The doer, on the other hand, lives in the moment and is myopic, and pushes the individual to pick the alternative that gives them the greatest value in the present.
In Thaler and Shefrin’s model, the planner controls the doer’s desire through willpower. In general, the model suggests that when people are asked about their preferences, their planner comes forth and they respond with a should option. However, when they are faced with a tempting opportunity, the doer comes forth and pushes the individual towards the want option. The term ‘should option’ applies not only to options that maximize an individual’s future well-being, but also to those that improve social well-being. For instance, one should not keep the air-conditioning running beyond what is necessary to stay comfortable, yet many people leave their units on all summer long. Likewise, one should conserve fuel and take public transit when available, but when the time comes, the comfort of a car is hard to give up.
A second theoretical account that has often been used to explain how individuals make should vs. want choices is the Theory of Hyperbolic Discounting. At the heart of this theory is the idea that people pervasively de-value the future and tend to prefer a ‘smaller/sooner’ reward (SS) over a ‘larger/later’ one (LL). This can be best explained by the Theory of Hyperbolic Discounting, which says that the value of future outcomes is discounted very steeply very close in time to the outcome, but more gently further away. As a result, when an individual sees a choice between SS and LL options in the future, they are both discounted greatly and hence the present value of LL appears greater than the present value of SS. And that is why people who view the two options from the present choose the LL reward over the SS reward. However, when one gets very close in time to SS, the perceived value of SS is now larger than the perceived value of LL.
Note that the concept of SS and LL rewards is a handy metaphor for should vs. want options. For instance, in the domain of eating, SS might represent a tempting chocolate cake while LL might represent better long-term health. Consumption of indulgences in moderation is good for our well-being; the trick is to keep the consumption in moderation. The greater trick, therefore, is to design effective stopping rules for consumption.
In short, a decision point is any intervention that is designed to get an individual to ‘pause and think’ about the consumption they are currently engaged in. There are a number of ways in which decision points can be created, but there are three broad methods:
1. inserting transaction costs (which work on the premise that requiring the individual to take a positive action makes them deliberate on the consumption decision);
2. providing reminders or information (which work on the premise that drawing attention to a neglected activity can provide the impetus to get it done with); and
3. creating interruptions to the consumption activity (which work on the premise that the interruption allows the individual to pause and think).
