People Don’t Plan

A news item refers to a recent research study that asks how far ahead people plan. The experiment asked people to make decisions at two points. Those who made what appeared to be the best decision at the first point found that they lost out at the second point. Only those who looked ahead to the second point would make the best decision at the first point.

The study found that 36 percent of people made the wrong decision at the first point. People wanted to make the right decision; at the second point, 97 percent made the right decision. But more than half failed to look ahead to see the effect of their first decision on the second point.

What are the implications of this study for us?

  • Does this suggest that we should let government do our planning for us (for example, by managing our pension funds)?
  • Or does it hint that maybe government planners will also fail to look ahead at the long-term consequences of their decisions (for example, by creating a social security system that is completely unsustainable)?
  • Or does it suggest that we should focus on creating institutions that don’t require people to plan ahead? (And if so, what would such a pension system look like, for example?)

Or maybe it doesn’t mean anything at all. Since I am speaking in Vancouver today, I don’t have time to think about this further at the moment. But I invite your comments.

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8 thoughts on “People Don’t Plan

  1. Dan

    * Does this suggest that we should let government do our planning for us…
    Or does it suggest that we should focus on creating institutions that don’t require people to plan ahead?

    Wow. That’s quite a pretzel you’ve twisted yourself into Randal.

    It certainly suggests that many people don’t think ahead. But that’s like saying some people don’t like potato crisps.

    It doesn’t address the fact that businesses, organizations, banks, clubs, the military, etc. plan.

    It also suggests that the vaunted Market might be tinged with agents who don’t plan well. But that’s like saying some cars on the road are red.

    HTH.

    DS

  2. D4P

    As a child, whenever I would say “I don’t care”, my great grandmother would respond “The prisons are full of people who don’t care.”

    On some level, she was essentially saying that “The prisons are full of people who don’t plan.” People who commit crimes often do so with a very short time frame in mind, failing to consider the long term implications of their present actions. Once they get to prison, I’m sure many of them wish they could go back and undo whatever they did.

    Most of us discount the future, which is why interest rates are typically positive. We’d rather have our hamburger today and pay for it next Tuesday. But come Tuesday, some of us will wish we hadn’t been so gluttonous the week before.

    The fact that many people don’t plan doesn’t mean that planning is bad. People routinely behave in ways that don’t maximize their own utility, as they often realize when the ramifications of their actions kick in. If individual behavior had no external impacts on other people, it might be legitimate to argue that people should be allowed to do whatever they want with no government to keep them in line. But individual behavior does affect others, both positively and negatively, and there are gains to be had from some kind of authority being used to promote “good” behavior and discourage “bad”. Some point to these gains as justification for government; others would prefer to forgo the gains in exchange for unbridled autonomy.

  3. Neal Meyer

    When I was reading Economics as an undergraduate student when a behavioral economics professor named Nathaniel Wilcox started a brown bag luncheons held on Wednesday’s during my last year of study. At one of these meetings, I mentioned that years before I had been part of a group which had tried to raise awareness amongst younger people about the long run problems with our federal entitlement programs.

    I told Dr. Wilcox that the experience left me often wondering about the issue of how far people see ahead into the future because my activism on the matter had made it clear to me that young people were not getting fired up about something that wasn’t going to affect them soon (unlike say like the Vietnam War had fired up young people in the 1960′s because it was affecting them right then). At the same time, older people had no obvious incentive to change things since they were living high off the hog on Medicare and Social Security now and that politicians rarely had any incentive to look very far past their next election.

    Dr. Wilcox’s response on my questions was quite interesting and intuitively felt correct to me. He said that the learned literature was pointing to the idea that many people can reasonably see what the world might be like up to about 2+ years into the future. From there, people could make reasonably concrete plans. After that, the world seems to get rather cloudy and uncertain. For example, what will the price of gasoline (or solar power) be in 10 years? Do anyone of us really know?

    I’ll give you another example of that uncertainty. I work in the IT department for a large Fortune 500 company. The management regularly runs metrics comparing the performance of the department against other peers in the industry which my company competes against. For years the department has regularly stacked up quite well on all kinds of issues, including costs and wages, recovery responses, complaints, planning for future expediencies (like when was Microsoft going to release Vista?), and so forth.

    So what was the reward for our performance? Well, earlier this year many of my Windows administrator counterparts were told that the company was looking at outsourcing them (I work with Linux, not Windows and am not affected by this decision). This past week, they were officially told that they were going to be outsourced.

    Lesson: Don’t plan too far ahead because any one of a number of things could come along on, which you have no control over, that could ruin the best laid plans which you have made for yourself or for which you have made for your fellow men.

  4. Dan

    Lesson: Don’t plan too far ahead because any one of a number of things could come along on, which you have no control over, that could ruin the best laid plans which you have made for yourself or for which you have made for your fellow men.

    We should be careful to get out of an experience only the wisdom that is in it – and stop there; lest we be like the cat that sits down on a hot stove-lid. She will never sit down on a hot stove-lid again – and that is well; but also she will never sit down on a cold one anymore. — Mark Twain

    Plan B, Plan C. Contingency. Scenario. Likelihoods.

    DS

  5. D4P

    The fact that we do not have perfect knowledge of the future and thus may need to make adjustments when the future arrives doesn’t dictate that we shouldn’t plan. It does, however, suggest that our plans should probably contain flexibility so that we can adjust to unforeseen circumstances.

    That being said, it could theoretically be the case that sufficient resources are spent on planning such that the necessary future adjustments rendered the planning un-worthwhile, at least in some sense. But it is also true that the value of planning is not 100% reflected in the plan. The process of planning can also be valuable in itself.

  6. StevePlunk

    I would question the value of this study as applied to public policy.

    I imagine the original designers of Social Security never saw the political corruption that would lead to it’s failure. Personal choices are different than political choices or group choices in dynamics.

  7. Dan

    I agree with Steve about the value of the study wrt public policy.

    And I’d add the designers of SS and the New Deal lived through the era of Harding’s ill-chosen Ohio Gang and their rampant corruption which (albeit perhaps not for long) was second to none in terms of scandal.

    DS

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