Stories | May 12, 2014

How can a “future selfie” save you a fortune?

Have you ever seen a really bad photo of yourself – one that ages you by years? It might be a bit uncomfortable, but there could be a hidden upside.

Picturing yourself years from now, research suggests, might help motivate you to save for retirement, and lead to a more comfortable life for your future self. The idea is explored in fascinating research by Hal Hershfield of New York University (and several co-authors) which finds that people shown an avatar of themselves modified to look much older are likely to choose to save more for their future than people who are shown a non-aged avatar. To understand why this might improve saving rates, we look to the concept of “empathy gaps”.

Hot and cold decisions
Back in 1996, behavioural economist George Loewenstein wrote about the effect of emotion on decision making. Being hungry or angry, for example, can lead us to act in ways that we know we wouldn’t normally, and can even make us feel “out of control”. This can be thought of as two different states of being: a “hot state” when we are emotional or our senses are aroused versus a “cold state” when we are dispassionate, satiated and at ease.

The decisions we make in a hot state are often at odds with those that we would typically make in a cold state. For example, if shopping after lunch (while in a cold) state I might pick up some lettuce and vegetables to make a salad for dinner, but by the time I get home after work, hungry and tired after a long day (hot state), I want nothing more than an easy take-away meal.

Strangers to ourselves
Follow-up research by Loewenstein and fellow behavioural economist Dan Ariely showed that not only can our desires vary depending on what state we’re in, but also we underestimate how much differently we will feel in these conditions. This underestimation of the change in our preferences – and therefore our decisions, which may have financial consequences – is called an empathy gap.

Put another way, when in a cold state we find it hard to empathise with the person we become in a “hot” state. The concept of empathy gaps has been used to reflect on all sorts of topics, from medical decisions such treating with pain medication and to punishment for school bullying. Of course, as my experience shopping when hungry demonstrates, this empathy gap can also be applied to understanding financial decisions.

Me now versus me later
The empathy gap isn’t just between our hot and cold selves; it is also between our present and future selves. Many of us know we should be contributing more into our pensions but then fail to do it. It is tempting to spend more of our paycheque on things we enjoy today than it is to put it away for the future. Dan Goldstein, a researcher at Microsoft Research and London Business School and one of the co-authors of the avatar research, describes this conundrum in his TED talk. Goldstein explains that commitment devices agreed to in a cold state might help us avoid veering off course when in a hot state.

However, another way to prevent making decisions that are not in our own perceived self-interest is to improve the emotional connection between our various “selves”. Specifically, Goldstein shows in his research with German financial services company Allianz that increasing the vividness of what it will be like to be older can help us empathise with our future self.

Bridging the emotional gap
That unflattering photo or an artificially-aged portrait might make us cringe. But on the positive side, they seem to help us imagine the future consequences of the decisions we’re making today. They can narrow the empathy gap – or improve the emotional connection- between our future selves and our present selves, nudging us towards saving more now for the benefit of our long-term financial health.

So the next time you are deciding on pension contributions, consider both the current obligations of your present self and how you want to live when you are retired. In the absence of an ageing app to doctor up your own “future selfie”, spend some time with a photo of your parent or grandparent. It might change your financial behaviour – now and in the future.

Nathalie Spencer
Nathalie Spencer

Behavioural scientist at ING