Behavioral Economics is defined as the study of cognitive, social, and emotional influences on people's observable economic behavior. In other words, trying to figure out why people behave as they do, from an economic standpoint.
The general view is that people are reasonable and will act in a rational manner. However, while that view may be accurate for short term decisions, it is much less true for the long term. And that makes sense because there is a virtual tug-a-war going on in our lives between what we need short term versus what we need long term. So what may be reasonable and rational for the short term could be irrational for the long term.
Look at it this way: companies look for a return on their advertising dollars and that return is measured in the short term. So the effectiveness of the advertisements is judged by how much revenue they bring in. And the revenue they bring in is our money that we choose to spend (short term) rather than save (long term).
Now obviously some current spending is necessary to survive, but after the basics are taken care of, it is up to each of us to decide between consumption and savings, and the statistics show that, as a society, we don’t do a very good job at this. And although there are many reasons that could be blamed, ultimately, it comes down to personal responsibility. That is something you will rarely hear from the mainstream media.
But Ralph Keeney, a researcher at Duke University found a much more ominous link to personal responsibility, or really, a lack thereof. His study revealed that approximately half of all deaths among persons 15-64 years old in the United States are caused or aided by bad personal decisions, particularly those relating to smoking, not exercising, criminality, drug and alcohol use, and unsafe sexual behavior.
To be honest, I am surprised that it’s only half. I mean, it’s not normal to die between the ages of 15-64, so if only half are caused by bad personal decisions, that means the other half are caused by either disease or an accident that we didn’t cause.
Given all of this, I guess it’s not surprising that so many individuals choose not to participate in their company’s 401(k) plan or choose to have an inadequate amount of life insurance. It fits right in with the other poor personal decisions they are making.
The good news is that I’m sure none of my readership fit that mold. Hey, we all make a poor decision occasionally, but as long as they’re not major and as long as we take personal responsibility for them, we can learn from them and grow as persons. An that’s what life’s about.