Everyone wants to grow old, but nobody wants to be old. Let alone that we would like to see a picture of ourselves as an elderly person. And that's really a shame, according to a survey by researcher Hal Hershfield of New York University. It shows that when we know what we look like in old age, we are more willing to save money. Following the investigation eZonomics wrote an article about the phenomenon of so called ‘empathy gaps'.
Have you ever seen a really bad photo of yourself – one that ages you by years? It might be shocking and a bit uncomfortable to see it in that moment, but there could be a hidden upside. That picture might help provide motivation for you to boost how much you 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 visceral factors 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.
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.
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.
Of course, as my experience shopping when hungry demonstrates, this empathy gap can also be applied to understanding financial decisions.
By Nathalie Spencer, behavioural economist and independent researcher.
Read the full article on eZonomics, ING's website that is about money and life. It combine ideas around financial education, personal finance and behavioural economics to produce regular and practical information about the way people manage their money – and how this can affect their lives.