Robert J. Stonebraker, Winthrop University
The Joy of
Economics: Making Sense out of Life
Robert J. Stonebraker, Winthrop
University
Never Again, Again
Procrastination is the art of keeping up with yesterday.
.....Donald Robert Perry Marquis
Every semester it is the same. The day after returning an exam, a student sheepishly slips into my office to discuss an embarrassingly low grade. The student protests, "I understood the material. But when I got into the exam, all that information just got jumbled together."
Why? To unearth the cause, I pose the expected questions. Did you read the assigned chapters in the textbook? "Yes." Did you study your lecture notes? "Yes." Did you complete the homework problems? "Yes." I probe more deeply. When did you read the text? "The night before the exam." When did you start studying your notes? "The night before the exam." When did you complete the homework? "The night before the exam." How much sleep did you have the night before the exam? "None."
One mystery is solved, but another is waiting. Why did you wait until the night before the exam? Why did you procrastinate? "I don't know." To drive home the message, I continue. Have you learned your lesson? "Yes." Will you wait to study until the night before the next exam as well? "No. Never again."
Should I believe the student? Would you?
Rational behavior
Economists assume that people make rational decisions, logically balancing the costs and benefits of every action. We portray economic men and women as maximizing agents, carefully rearranging consumption and production patterns until all possible "gains from trade" are exhausted. Ignoring an unexploited gain, like leaving a $100 bill lying on the sidewalk, would be irrational.
This depiction of rational economic agents is a powerful tool. It allows us to harness deductive logic and mathematics to derive behavioral predictions under an enormous range of circumstances. It has spawned the development of an impressive array of quantitative and statistical techniques to construct and test and refine hypotheses. It allows us to explain in a systematic way what makes an economy tick. In short, it has created a scientific rigor often absent from our sister social science disciplines.
But is it correct? Are people truly rational? Perfectly rational people do exist in fiction. Star Trek's Spock is slavishly devoted to cold, hard logic and The Next Generation's Lt. Commander Data is never swayed by emotion. Do real-world counterparts exist?
Never again
Not long ago, with my wife out of town, I bought a "family-sized" bag of crunchy cheese doodles. That evening during a commercial break in Jeopardy!, I wandered into the kitchen, pulled out the doodles, and ate them. All of them. Soon after, just as the Atlanta Hawks were making a run at the Seattle Supersonics, my digestive system discovered the enormity of my sin -- and made me pay. In the midst of my discomfort I vowed "never again!"
"Never again!" is exactly what I vowed the last time I gorged on crunchy doodles and, no doubt, is exactly what I will vow the next time. In other words, I knew it would happen. As soon as I pulled those luscious orange morsels from the grocery store shelf, I knew I would overeat, and I knew I would make myself sick. I bought them anyway. I have vowed to never do it again. But I will.
My colleague's office is in chaos. The debris has spilled off his shelves and desk onto the floor. Two-year old post-it notes dot the side of his desk and an eight-year-old planning calendar adorns the wall. With mounds of boxes, books and papers effectively blocking any entry, he works and holds "office hours" in the department lounge. One summer, during a rare foray into the mess, he discovered a long-lost hairbrush buried under an avalanche of papers on his desk. Beside it were the remains of a large Hershey bar (no almonds), almost completely consumed by the office mouse. Only a small corner of the bar and wrapping remained. We suspect the mouse is still there, happily living out his years amidst the clutter.
In the midst of disarray, he vowed "never again!" That is exactly what he said the last time this happened and, no doubt, is exactly what he will say the next time. His "I'm going to clean my office" cry has echoed around the department for years, without measurable results. He is no more likely to clean his office than I am to resist crunchy doodles or my students are to study early for the next exam.
And we are not alone. Those of you with broken resolutions to cut back on smoking or caffeine or ice cream or alcohol should sympathize with my craving for crunchy doodles. And what about the faucet that still leaks (you promised to fix it weeks ago), the photos that need to be arranged in the family album, the tax return sitting on your desk?
It is not that we want to wait until the last minute or want to overeat or want the office a mess. We don't. We fully expect to be better off if we study early or no longer overeat or clean the office or fix the faucet or arrange the photos. We fully intend to stop, clean, fix, arrange, or whatever. We just never get around to doing it, and the potential gains are lost.
The role of salience
Why? Can this pathological behavior be reconciled with our textbook picture of reasoned analysis of costs and benefits? Yes.1 Borrowing the psychological concept of "salience", such behavior can be explained, and even predicted.
In a nutshell, people place disproportionate weight on vivid or "salient" events relative to less vivid or "pallid" information. For example, even if Consumer Reports lists Mazda as the most reliable car on the market, we are unlikely to buy one if a neighbor bends our ear every week about the enormous repair bills her own Mazda runs up. Our neighbor's experience does not alter Mazda's excellent overall record, but its salience or prominence will influence our decision. Similarly, the loss of a single family member or friend to AIDS will have far more impact on our perception of danger than all of the pallid data the U.S. Surgeon General can muster. The AIDS-related death of famed tennis star Arthur Ashe had no more statistical relevance than the death of an unknown victim, but its salience made a disproportionate impact on public opinion and policy.
The same concepts can explain procrastination. The events and emotions of the day are immediate and pressing, those of the future are vague and less vivid. The costs of dieting or cleaning today are painfully salient; the costs of starting later are pallid.
Suppose a clean office is worth $1 per day, and the time and aggravation of cleaning has a cost of $100. A rational agent should clean. The continuing $1 benefits per day will easily outweigh the one-shot $100 cost over the long run.2 But suppose salience adds to the cost of cleaning today rather than later. Suppose the salience of immediate pressures makes us assess the current cost at $102 as opposed to the normal $100 cost on some future day. That small two percent difference is all that it takes. If we think we can save $2 by waiting a day, and we value a clean office at only $1 per day, it will always seem rational to wait. We will procrastinate forever! Salience drives a wedge between current and future values. Rational agents are supposed to foresee the impact of current decisions on their future well-being. But the salience of short-run pressures can make us systematically act contrary to our own long-run best interests.
Extensions
Salience can explain more than dirty offices and postponed diets or study. It can explain more critical economic failures as well. It can explain our preoccupation with short-run profits at the possible expense of long-run growth, and our passion for consumption at the expense of saving.
According to conventional economic theory, workers voluntarily save whatever they deem necessary for future retirement income. Saving anything less would be irrational. Throwing such workers into mandatory pension programs should have no impact on total savings. If workers already have saved the appropriate amounts, forcing them to save $100 in a mandatory pension should simply cause them to reduce their voluntary saving by $100. Saving more than is necessary is just as irrational as saving less.
But that is not how real-world workers behave. Studies indicate that mandatory pension plans do increase total savings. This result is not consistent with some theories of consumption, but is easily explained by salience. The immediate pleasures of consumption are salient. Saving, like office cleaning and study, can always be postponed until tomorrow.
What about deadlines? Deadlines can limit our ability to procrastinate. We can wait forever to start a diet, but not to file our taxes or complete a project for school or job. Salience can prompt us to postpone such chores, but as the deadline approaches, the benefit of quick completion begins to dwarf the cost of further procrastination. The salience of current leisure activity is eventually offset by the salience of impending doom. Students routinely wait until Wednesday to prepare for Thursday's exam, but cannot procrastinate until Friday. Non-students routinely wait until the April 15 deadline to file tax forms.
Does it matter? After all, as procrastinators will insist, the homework is completed; the taxes are filed. Nevertheless, procrastination can create real costs. The exam material studied at the last minute is never mastered as thoroughly, and the paper written at the last minute never flows as coherently. And taxes? Procrastinators due tax refunds sacrifice the interest they could have earned with quicker action. Tax specialist Joel Slemrod estimates their annual loss at over $1 billion.3 Additional administrative costs are incurred when the IRS must correct errors made in hasty attempts to meet the deadline, and local post offices extend hours to accommodate last-minute filers.
Slemrod and his colleagues also suggest a second explanation for procrastination. They note that the cost of action will vary from day to day. Poring over taxes or studying or cleaning an office is very costly on a sunny day on which you are offered box seat tickets to see the New York Yankees hammer the Boston Red Sox. The same chores are much less costly when inclement weather limits alternative pursuits. Suppose the cost of spending time to calculate taxes on any given day is drawn randomly from a normal, bell-shaped distribution of possible values. In this case, we must balance the cost of action today against the likely cost of action tomorrow. Even if salience is unimportant, rational agents will postpone action if they anticipate drawing a lower cost of action in the future. In their words:
...people do not leave $100 bills lying around on the sidewalk forever. However, they may leave them there for some time while they wait for a moment when bending over to get the bill is relatively painless.4
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Notes:
1. See Akerlof, George A., "Procrastination and Obedience," American Economic Review, volume 81, number 2, May 1991, pp. 1-19. Much of this section draws on his perceptive analysis.
2. This example ignores the possibility of investing the $100 and earning interest. A more complex example that allows such investment easily could be constructed to illustrate the same concept.
3. Slemrod, Joel, Christian, Charles, London, Rebecca, and Parker, Jonathon A., "April 15 Syndrome," Economic Inquiry, volume 35, October 1997, pp. 695-709.
4. Ibid., page 708.
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Testing Yourself
To test your understanding of the major concepts in this reading, try answering the following:
1. Explain the concept of salience.
2. Use the concept of salience to explain inefficient procrastination and inefficient savings patterns.
3. Use the concept of salience to explain the impact of deadlines.