Tuesday, December 4, 2012

A Case Study in Short Term Bias

One of my friends smokes. He first got started when he was in an underdeveloped market when he was really bored (no internet access and an extremely unreliable electricity grid will do that to you) and found out that cigarettes cost about 50 cents a pack.

When he came back, he started to cut back on the habit. But he didn't quit completely. He would only smoke in social situations, and only with cigarettes that he bummed off other people. Then he started buying his own cigarettes. Went from 5 cigarettes a day to a half pack. Eventually he graduated to a full pack a day smoker.

The way he first started smoking is what really struck me. He was in a foreign country and was really bored. That just boggled my mind. My friend is not a stupid person. Quite the contrary. He's actually very intelligent. But he has very poor self control and apparently his intelligence does not extend to his own personal affairs. Because he's aware of the deleterious effects of smoking and he still does it.

This is a classic example of short term bias. Because any perfectly self interested person would not smoke. And if they were previously irrational and then suddenly turned self interested, they would strive to quit as fast as possible. Because smoking leads to debilitating and fatal diseases such as emphysema, lung cancer, and heart disease. Any person who cares about their life would simply not smoke.

But those diseases and conditions come later on in life. And there isn't a guarantee that a smoker actually gets them. There are a lucky few who can smoke like a chimney and never have those complications. But the benefits of smoking a cigarette in the present, the buzz, the nicotine, and the stress relief are immediate and guaranteed. So that's why smokers keep on smoking. Because they see an immediate benefit while the negative effects occur in the future.

I read a book called Gang Leader for a Day and it was about this Chicago School economics major who embedded himself in an inner city gang for a few years. And in one of the chapters, the gang leader is talking to the author and they're talking about whether it's smarter to buy drugs from a supplier with a discount now or in the future. The author says something like "well it depends on the difference between the immediate discount and the future discount. The gang leader replies with "no, you take the discount now. Because you don't know whether that dude is gonna be in jail or shot or something".

We're hardwired to think in the short term. While saving for the future or modifying your present behavior for future benefit (proper diet, exercise, studying, etc) are relatively new concepts, they are absolutely essential for success in modern society. But we put it off because it's always more immediately gratifying to view yet another lolcat meme instead of studying for a test that's two days in the future.

There are plenty of people who think the best way to educate our children is to immediately reward them for routine things like doing homework, getting good test grades, and attending class. Giving them an immediate short term benefit while also allowing them to gain the long term skills needed to function in the economy makes a ton of sense. It's sort of like tricking them for their own benefit.

This is what humans are programmed to do. And it's important for policy makers to consider our short sighted nature when they try and pass programs for our ostensible benefit.


  1. It was interesting how you looked at your friend's behavior as irrational. I do that all the time. I think it's because we look at the world differently. There was an episode of The West Wing where Leo McGarry (John Spencer) talks about his alcoholism. It kind of changed the way I looked at people's behavior.

    I couldn't find the complete link online but here it is broken into two parts:

    Link 1
    Link 2

    I like how he says, "You know how many alcoholics there are in Mensa?" I had a college professor that was brilliant, as I'm sure we all have. I asked him if he was in Mensa and his reply was, "Are you kidding? Have you seen those people? They can't function in society. They're just a weird group."

    There's definitely a balance out there. It seems like there are highly intelligent people with no "common sense" and vice versa. Maybe your friend's smoking is his social outlet.

    1. I'm aware of the "there is no such thing as an irrational individual" argument, but sometimes you have to call a spade a spade.

      In any case, any smoker who tries to quit but inevitably falls off the bandwagon is ultimately a person who values short term relief over long term health. It can be perfectly rational in their world view, but at the same time another person can "know better".

  2. What about people with weak joints as a result of injuries who continue to pursue physical activities which will potentially injure said joints?

    Also, I'm not sure I understand how you're using the gang leader anecdote. While in one sense the guy is "thinking in the short term", the decision is grounded in long-term rationales just as is the decision not to smoke, i.e. because of a reasonably high risk of damage/lost opportunities in the future by choosing the other option.