Have you ever chosen to hit the snooze button in the morning instead of getting up to exercise? Or opted to watch television on a Friday night rather than study for an upcoming exam? If so, you may have fallen victim to present bias. Present bias refers to the tendency to prioritize immediate rewards or comfort over future benefits when making decisions.(O’Donoghue & Rabin, 1999) This cognitive bias poses significant challenges to achieving long-term goals, as it consistently drives individuals toward choices that provide instant gratification, even when those decisions may ultimately be detrimental to their well-being or aspirations.
This tendency to prioritize immediate rewards is not limited to everyday habits; it extends to financial decisions as well. Present bias can distort individuals’ perceptions of the future, often resulting in impulsive choices that misalign with long-term financial objectives. For instance, an investor might opt for the high returns of a speculative investment without adequately considering its associated risks, overlooking a growth stock with no immediate dividends but greater potential for future capital appreciation. One key factor underlying such decisions is loss aversion—the tendency to prioritize avoiding losses over securing gains.(Kahneman and Tversky,1979) For risk-averse investors, delaying a reward may introduce the fear of never receiving it, further reinforcing present-biased behaviors.
“Present bias, this idea that what happens right now counts fully and what happens in the future counts half, explains this gap between our good intentions and our actions. Because when we look into the future, we say, ‘In the future I will do the right thing.’ But when we get there, we want to go for immediate gratification.” (David Laibson, 2018) Laibson illustrates this with the observation that people often plan to make virtuous choices in the future but succumb to immediate gratification when the moment arrives. To bridge this gap, one effective strategy is to make desired behaviors automatic. Research led by Professor Laibson shows that automatic enrollment in employer-sponsored retirement plans significantly increases employee participation. This principle can be extended to daily life by minimizing the effort required to initiate beneficial behaviors, thereby reducing reliance on willpower and increasing the likelihood of long-term success.
Another effective strategy is to focus on finding immediate satisfaction in activities that contribute to delayed gratification. For example, individuals who derive enjoyment from their academic pursuits are more likely to study diligently, while those who find exercise fun are more consistent in going to the gym. This approach aligns with insights from the famous Stanford Marshmallow Experiment conducted by Austrian-American psychologist Walter Mischel. In the study, children were presented with a choice: they could eat one treat immediately or wait a short period to receive two treats. While many children opted for instant gratification, a few successfully delayed their reward. Follow-up research revealed that those who resisted were more likely to excel academically and exhibit better self-control in later life. This finding underscores the importance of reframing long-term goals to include elements of immediate enjoyment, making it easier to sustain positive behaviors over time.
Hitchcock,J.(2024) Present Bias – Everything You Need to Know [Online]. Available at: https://insidebe.com/articles/present-bias/#:~:text=Summary-,What%20is%20present%20bias%3F,decision%20benefits%20us%20less%20overall (Accessed: 23 November 2024)
Hayes,A.(2023) 5 Ways to Avoid Present Bias in Investment Decisions [Online]. Available at: https://www.investopedia.com/present-bias-in-investment-7369328 (Accessed: 23 November 2024)
Becker,J.(2022) Present Bias: How It Affects Us and How to overcome it [Online]. Available at: https://www.becomingminimalist.com/present-bias/ (Accessed: 23 November 2024)
Laibson,D.(2018) Present Bias, Behavioral Economics, and Behavior Change [Online]. Available at:https://youtu.be/UocAX_jDsN0?list=TLGG1viGSZRSnuYyMzExMjAyNA (Accessed: 23 November 2024)
Cherry,K.(2023) The Meaning of Delayed Gratification [Online]. Available at: https://www.verywellmind.com/delayed-gratification-why-wait-for-what-you-want-2795429#:~:text=Delaying%20gratification%20is%20%22the%20act,or%20self%2Dcontrol.%221 (Accessed: 23 November 2024)
B.BIAS 