Humans are very bad at making good decisions about things that matter in the long term. Whether it’s choosing to workout over watching TV, a cookie over a salad, saving money or a new car, there are so many ways we satisfy our desires today instead of doing what we know will set us up for success tomorrow.
It’s not that we don’t know what’s good for us. It doesn’t take rocket science to figure out that if we keep eating those cookies every day, we’ll eventually gain weight. Rather, it’s that we value what feels good in the moment more than what we know is right for us in the long term. This phenomenon is widely studied by behavioral economists and is called “hyperbolic discounting.” HR leaders and benefits pros see this in action — and are frustrated by it — every day.
Much of benefits design and communication is about overcoming this incredibly ingrained human trait. We know employees can — and should — just do simple things today that would pay off big time down the road. But they don’t. Understanding why they don’t and how to counter this behavior can help you create more effective benefits programs and better outcomes for your organization.
One of our favorite experts on the topic, Nir Eyal, published a recent guest post on his blog “Nir And Far” by Lakshmi Mani on this topic. Titled “Why You Make Terrible Life Choices,” it explained hyperbolic discounting and the ways to overcome it. Mani summarizes the dilemma perfectly:
“A caveman did not have to contend with the same complex choices we do today. Cavewoman Lakshmi never had to choose between eating a pig today versus investing it in a pig 401(k) that would yield a 4x return in the future. Under harsher living conditions, we didn’t know if we would survive till the end of the day so our species evolved to choose the immediate option that most increased our chance of passing down our genes. Our brains are wired to choose immediate sure-things rather than the potential of a far-off future reward.”
So, there you have it — getting people to save more in their 401(k) requires overcoming the cognitive traits developed over thousands of years of evolution. No easy task!
But acknowledging this challenge gives us more perspective into how to help people make good decisions. We must remember that what we ask employees to do today for their health or financial security doesn’t come naturally to them. Simply not having to worry about surviving every day is a relatively recent development for humankind. Even more recent is the idea that you should stash away a lot of money over the span of 40 to 50 years so you can spend it in the future. Or that you should give up a meal today so that you’re healthier in the future.
Does this mean the situation is hopeless? Not at all. But we have to be realistic about what it takes to get people to trade short-term rewards for long-term potential.
One of the lessons we have learned time and again is that education isn’t enough. We can’t just tell people what they should do — they still won’t make the trade-offs between now and the future.
But we can make good decisions easier and bad decisions harder by taking a very deliberate and thoughtful approach to designing smart plans and systems. Whether that is by automatically enrolling employees in their 401(k) or putting the fruit on the counter and the candy in a drawer, there are countless ways to design programs and workplaces to support smart choices.
Another way we can do this is through the messages we choose to push out. Instead of focusing on what someone needs to do in the future, focus on the things they want to do now. Someone may need to lose weight to prevent the onset of diabetes a few years down the road, but that same person may want to lose weight now to look good in the designer clothes they’ve been coveting. That’s exactly where you should focus: what feels good now.
Most importantly, we can and should embrace HR’s role as the architect of these choices. We know what employees should do to protect their long-term health and financial security. Every choice about designing programs and communicating them should help nudge and influence the right behaviors.