How much would you pay to see your favourite band play live – in 10 years’ time? People in an experiment said €129 – but when asked how much they would pay today to see their favourites from 10 years ago perform, the sum shrank to just €80.
In a completely rational world, the figures should be the same – but they’re not. Dan Gilbert, Harvard professor of psychology, explained why in his keynote for the ING-sponsored Think Forward Initiative Summit 2018 in Amsterdam.
Most of us remember who we were 10 years ago but we find it hard to imagine who we're going to be, Dan says – and this can have big consequences for how we earn, spend and save. “When human beings think about the future, they almost cannot help but think about it in terms of the present,” he says.
What we want now
We tend to pay too much, for instance, to indulge our current preferences and desires, because we don’t anticipate how much our perspective will change over time. One example might be the temptation to spend money today, instead of investing for the future.
One thing that can help is imagining our future more vividly, he says. When making decisions about how to fund your retirement, imagine where you’ll be when you’re 65, in all possible detail. Research shows it can help you make better choices about what to do with your money now to benefit your future self.
Imagining this can be difficult. An easier way is to find someone who has already chosen one or more of the options you’re considering, and discover how it turned out for them. Even though we feel very individual as human beings, in truth we are all very similar and likely to react in similar ways.
If some kind of technological solution were possible, it might look something like a great database of human experiences, Dan explains.
In his TED Talk on why we make bad decisions about money and happiness (among other things), Dan explains that the expected value of any of our actions is the product of the chance of success and how we value that success.
Gambling on future finances?
If we can estimate these two things, we should always know how we should behave. Typically, though, people do this so badly that in the USA, for example, they lose more money through gambling than all other forms of entertainment combined, he says.
“Estimating odds is a piece of cake compared to estimating value,” Dan explains.
Intrigued by his thoughts on the future? Watch Dan’s short six-minute TED clip on the psychology of the future self and what he calls the “end of history” illusion.