The visual illusion of greater length leads us to the wrong conclusion, in this example and elsewhere. We make the wrong choice, over and over again, even though we know the truth of the matter.
Neuroscientists wanted to understand the connection between our perceptual experience and our inability to inhibit our impulses. To do this, they put kids and adults in an fMRI scanner to determine what areas of the brain contributed to their decisions about whether two rows of objects contained the same number of items. The kids reported that the longer line had more items in it, even though it did not. Adults correctly said the two lines contained the same number. Though their responses were different, both the kids’ and the adults’ brain scans showed some remarkably similar patterns. Adults showed brain activity in the posterior parietal and frontal regions, areas of the brain that help us detect shapes and make sense of their spatial relationships with one another. When adults experienced the visual illusion, these brain regions kicked into overdrive, suggesting that they were experiencing the same visual illusion as the children were.
Adult brains also showed activity in the anterior cingulate cortex, a brain area that helps us stop ourselves from doing something we believe is wrong. Adults did not confuse the length of the row with greater quantity because their brains recognized that the illusion was happening and stopped what would have otherwise been a spontaneous and mistaken judgment.
In general, the brain areas that curb knee-jerk reactions, as does the anterior cingulate cortex, are not really mature until we reach our mid-twenties. It was surprising, then, that some of the kids’ brains did seem to register the error, suggesting engagement of their impulse-control regions. These children were less likely to mistake greater length for greater number.
Even though, as adults, our neurological capacity to surmount our natural and reflexive tendencies has matured, we don’t always exert our powers of control. We multitask beyond our cognitive breaking point even after knowing the behavior’s detriments. As a study of credit card debt makes clear, it is hard to override our in-the-moment impulses.
Researchers from Columbia Business School and the University of San Diego’s economics department worked with clients in Boston who were seeking assistance with tax preparation. Luckily for some of these clients, the day they walked in looking for help, the researchers had instructed the tax preparers to offer them a cash bonus. Just for coming in, they had the choice of receiving thirty dollars now or waiting one month to receive eighty dollars. Could you hold off for thirty days to get an extra fifty bucks? But some of the clients considered tougher decisions, like choosing between seventy dollars today or eighty dollars a month from now. Now the question was whether they would want to hold off for thirty days for a mere ten-dollar bonus. The clients saw the tax preparer’s checkbook out on the desk and knew this choice was a real one.
The clients’ preferences when considering the cash bonuses revealed something meaningful about how they approached financial decision-making. The researchers used these preferences to determine whether they were more focused on the present or the future. The present-focused clients were the ones tempted by the smaller sums they could take home right now, even though it meant they would be taking home less in the long run. The future-focused clients were interested in holding out longer for a fuller wallet.
After the clients left with their tax documents squared away, the researchers combed through their financial documents and noted the balance on revolving credit accounts each client held. What the researchers found was that present-focused clients were saddled with more credit card debt. In fact, they had almost 30 percent higher credit card balances than clients who weren’t as tempted by the quicker but smaller cash offer. Focus on the present appeared to have played a substantial role in suboptimal financial decisions those clients had made in the past—as well as affecting their decisions in the year to come. Twelve months later, when they returned to the office for assistance with filing their taxes, they still carried much more debt than the future-focused clients.
Overriding the Present-Bias with a Wide Bracket
This general tendency to make a quick decision reflecting thoughts and preferences in the present undermines many of our best intentions to chart a course of action that benefits us in the long run, whether in terms of how we manage our credit cards or how we spend our time and cognitive resources to accomplish tasks. We continue to choose the immediately tempting solutions to problems, like the cash reward today or the multitasking option, because they seem like the right solutions to demands on our wallet and resources. How do we overcome that present-focus and make decisions that will benefit us more later? The wide-bracket mindset can help.
A wide bracket expands our focus and encourages us to consider options that lie at the fringes of what is possible. The decisions we make when considering this expanded range of possibilities may yield outcomes that are more lucrative and that better advance our more important goals.
Consider the 2009 Credit Card Accountability, Responsibility, and Disclosure Act, or CARD Act for short. With this bill, credit card companies were required to inform customers about the financial consequences of the amount they elected to pay toward their balance. The goal was to assist consumers in making wise financial decisions, and to encourage people to pay more each month toward their revolving balance. The CARD Act required that each statement include two components. First, statements must disclose the total time required to pay off their balance, and total fees customers would spend if they paid just the minimum each month. Second, statements must include the monthly amount needed to pay off the full balance in three years.
Do these regulations improve people’s decisions about how to handle debt? Professors at the business schools of UCLA and Northwestern University sought the answer. They presented individuals with credit card statements that included the information the CARD Act now required. The participants imagined that the total balances and financial information provided on the bill reflected their own. Upon seeing the financial forecasts, individuals reported how they believed they would respond; they said they intended to pay five times the minimum, a sum that amounted to about 10 percent of the revolving balance. This might seem like a strong contribution to paying down the debt. But had that CARD Act information not been present, individuals would have paid more—in fact, the study showed that under some circumstances people would have paid almost twenty times the minimum if that financial forecast were absent. Of course, the minimum required payment fluctuates as the total balance of our account waxes and wanes, and as a result so too would the magnitude of the effect I just described. But even as the researchers changed these values, time and time again they saw that the CARD Act information actually reduced the amount paid to the account. The regulations seemed to have backfired.
The problem with the CARD Act requirements is that the financial forecast acted as a strong reference. Individuals interpreted it as a savvy suggestion for the responsible course of action. The payment amount contained within that forecast functioned as a compass, strongly guiding people’s decisions about how much to pay that month. But it was actually much lower than what many individuals would have chosen to pay had it not been included. People’s decisions reflected present considerations—paying less now—at the expense of long-term benefits for their fiscal health.