I'll Go To The Gym -- Tomorrow
One of the wider debates about the economy is whether the severe recession will alter consumption patterns. From the perspective of classical economics, one might suggest that the answer is "yes." Consumers, businesses, and financial institutions will have learned from the experience and will return to a more balanced, cautious approach to consumption, borrowing, and lending. The traditional view that markets consist of parties acting rationally and in their best interests promotes the notion that we will learn from the experience and will practice better self-control.
On the other hand, behavioral economics suggests that we largely may revert to the same consumption patterns that led to the crisis. As we've discussed in earlier arguments, behavioral economics holds that many of the decision-making processes we use are not rational and that we often make decisions that are not in our best long-term interest.
An interesting field of study helped by this branch of economics has been the field of weight loss. There are some good analogies between losing weight and trying to manage money more responsibly. Despite the billions Americans spend each year on dieting, the introduction of hundreds of "healthy" foods each year, and the constant drumbeat of how to lead a healthier lifestyle by government, health advocates, and news organizations, obesity rates continue to climb. Similarly, despite a great deal of advice about financial planning and the benefits of long-term saving, the rate of savings had continued to decline steadily until the recent downturn.
One powerful insight of behavioral economics is the mechanisms that people use to make a choice over time. Dieting and exercise have long-term benefits that most people recognize. Yet, when presented with a choice – let's say, watching a favorite show now or going to the gym now – we tend to take the choice that offers instant gratification. We get an immediate and tangible benefit from watching our program or eating a piece of chocolate cake and a deferred benefit from eating an apple or hitting the gym. The gym may be embraced with enthusiasm, especially if it is a choice that can be deferred to the future.
Similarly, researchers have learned that emotions usually trump rationality in the choices we make. The sight, smell, and taste of chocolate evoke an emotional response that can win out over the desire to diet. The same types of emotional responses accompany any desirable object, and we are thus prone to buying the dream house or luxury car, even though its cost exceeds our budget. In this area, there is also plenty of evidence to suggest that a significant minority of people who have made a considered choice will abandon it in light of a compelling emotional option. For example, in experiments where people have pre-selected a meal from a menu of healthy choices, up to half will end up actually choosing unhealthy items when presented with an assortment of items that includes both health and unhealthy foods.
As marketers design new marketing programs for the recovering economy, one area that will need to be considered is the short-term economic realities that will continue to hold consumption in check (unemployment, consumer anxiety, less available credit, etc.) and the fundamental dynamics of how we consume. Once some of the immediate concerns abate, it is likely that many of us will revert to pre-recession patterns. Which means we'll once again be savoring our chocolate cake while contemplating our visit to the gym tomorrow.
Posted at 06:38AM Nov 09, 2009
by David King in General |
