Our weekly explainer on economics using lessons from popular culture. In Installment 23, Amol Palekar falls for the Present Bias.
‘Aane wala pal/ Jaane waala hai/ Ho sake tho isme/ Zindagi bita lo/ Pal jo yeh jaana waala hai/ Ho ho.’ — Gol Maal.
(‘The moment that is to come/ Will soon be gone./ If you can/ Live your life/ In this passing moment/ Ho ho.’)
As I sat down to watch Gol Maal for the millionth time this weekend, the lovable Ramprasad impressed me with his economic acumen right in the opening. He demonstrates an understanding of Sunk Costs and convinces his friend to throw away a movie ticket and watch a promising football match on TV instead. Ramprasad seems set on a path to a Nobel prize.
Alas, as the movie progresses, he falters. At least, in economic terms. He weaves a net to escape his suspicious employer and breaks into a song that would make Richard Thaler smile. Not a smile of affection or even admiration for Ramprasad’s risky undertaking. It would be the smile of a sage who watches lesser mortals fall into one of the many behavioural traps that they are wont to do.
Ramprasad is exhorting us to live our lives and invest all our energies in the present moment without a thought to the future. You might conjecture that Ramprasad is so afraid and uncertain about how his cunning enterprise would unfold that he’d rather not think about tomorrow. Spiritual gurus might interpret the words to mean ‘mindful living’. However, to an astute listener like yours truly, Aane Waala Pal is dripping with what Behavioural Economists call the Present Bias. (In fact, such is the brilliance of Gulzar’s lyrics in this song, it offers many lessons and has been written about previously in Housefull Economics to explain Opportunity Cost).
Simply stated, Present Bias is humans’ tendency to over-value the here and now, and make choices which are detrimental in the future. Put another way, given a choice between a smaller payoff today and a larger payoff in the future, people choose instant gratification.
Who doesn’t start their new-year morning full of resolve to eat healthy, exercise more, spend wisely, save for retirement, and manage our time better? We completely ignore that barely a few hours ago, when we were out partying to ring in the new year, we did everything to the contrary. And come January 7, we begin to give in to temptations. By March, we have forgotten all about our resolutions, and have started making plans to diet, to stop procrastinating, and to join the gym. But, next week. For now, that pizza in the fridge and the latest episode of Game of Thrones is too tempting.
It is important to note the subtle difference between Present Bias and ‘mindful living’. The latter urges us to stay focussed on the task at hand and enjoy the experiences we have without distractions. This has been shown to make people happy. Present Bias, on the other hand, leads us to make irrational trade-offs. To be sure, when we’re eating a pizza, we ought to enjoy the experience. But it is when we order it in the first place that we should ensure that it doesn’t sabotage our long-term goals.
This philosophy of Eat, drink, and be merry for tomorrow we may not live affects the best of us. Only, not many of us die on the morrow. We continue to cheat our future selves.