Neuroscience | Behavioral Economics

Why Do We Struggle To Make Decisions For Our Future Selves

Bruno Cordeiro

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Published in

Predict

3 min readJun 27, 2021

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Understanding the glitch in our brain that prevents us from saving money for our dreamed retirement

I. A BROKEN DREAM

Many people dream of retirement but lack planning.

A survey conducted by Provision Living, a company that provides assisted living, memory care, and senior care services across the Midwest, found that more than half of Americans age 22 to 74 think about retirement at least four times per week. The survey also discovered that 43% of millennials have less than $5,000 in savings for their retirement years. Whereas 5% of respondents said they were “too young” to even think about retirement.

Another survey conducted by GOBankingRates revealed that 64% of Americans are at risk of retiring broke.

I know there are plenty of reasons why people struggle to put money aside for their savings but in this article, I’m gonna focus on the scenario where they have money to save but just opted not to. Let’s think like they were the 5% mentioned above.

II. OUR FUTURE SELVES

It is hard to think about the future, it is even harder to think about your future self. When we try to imagine ourselves in the future, our brain tends to trick us by making us imagine our future self as completely strange. Let’s see why it happens like that.

When we think about ourselves, one region of our brain called the medial prefrontal cortex fires up. This region is responsible for determining who you are, for holding your sense of identity. So, whenever you experience something that is important to yourself or to your goals, this part of the brain fires up. The opposite happens to situations or people that are not familiar or important to yourself, in those moments, that region powers down.

Here is the interesting thing, when you think about yourself in the far future, this part of the brain starts to power down to the same level as when you think of people that are strange to you, or you somehow don’t feel related to them.

III. IS THERE A WAY TO TRICK OUR BRAIN?

Regardless of the reasons why individuals do not always behave in their best interests when it comes to saving for retirement, behavioral economists have partnered with the public and private sector to bring insights to improve retirement programs. One of the nudges used is known by Keep it Simple, Easy, and Make the Default Automatic.

Nudge is a concept in behavioral economics, political theory, and behavioral sciences that proposes positive reinforcement and indirect suggestions as ways to influence the behavior and decision-making of groups or individuals.
— Source: https://en.wikipedia.org/wiki/Nudge_theory

Behavioral economics tells us that people are more likely to adopt simplifying strategies when faced with overly complex choices. It leads them to take whatever option that requires the least effort. A program named Save More Tomorrow (SMT), also known as The SMarT plan was created by Thaler and Benartzi. The program has varied in implementations, but among its main features, it tested auto-enrollment with an option to opt-out and auto-escalation to make it easier to save. The use of default settings increases the probability of people continuing with the program until they reach their goal.

FINAL THOUGHTS

The brain is the most complex organ in the human body and not always work in our favor. I hope you enjoyed this article and it made you reflect on what you can do now for a better retirement in the future.

Thanks for reading!

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