September 04, 2009
Financially Impulsive Are Generally Impulsive

People who are impulsive show impulsive tendencies in multiple areas.

The study, conducted through the BBC website with over 40,000 participants, measured people's financial impulsivity by asking whether they would they prefer to receive 45 in three days or 70 in three months. The survey asked a related series of questions about other behaviours. Nearly half of those who responded preferred the smaller-sooner sum of money, and these people were more likely to show a raft of other impulsive behaviours.

Dr Stian Reimers, ESRC Centre for Economic Learning and Social Evolution at UCL, says: "One of the big questions about people's financial planning is whether decisions to spend or save come from personal knowledge and experience of money matters or whether they reflect someone's personality more generally.

"Our research shows that people with an impulsive money-today attitude ignore the future in other ways. For example, they are more likely to smoke and more likely to be overweight, which may reflect a preference for immediate pleasure of nicotine and food over long-term good health. People who chose to take the smaller-sooner amount of money were also more likely to admit to having had an affair in recent years, suggesting another manifestation of desire for immediate gratification."

So impulsiveness tends to express itself in many ways in the same person. I wonder if some readers though would admit to impulsiveness in only very narrow areas of behavior. Anyone have untypical impulsiveness?

Someone who takes the 45 now is turning down a 56% return in just 3 months. You can't expect such a person to save for their rent let alone for their retirement. The rest of us end up paying thru taxes and other means to support the most impulsive.

Imagine credit card issuers were allowed to somehow measure impulsiveness. What would they do with the results? On the one hand, impulsive people are more likely to run up debts they can not pay. On the other hand, credit card companies make money by charging high interest rates to people who insist on immediate gratification. Credit card issuers would probably ideally like to prey on people who have moderate impulsiveness and substantial earnings capability.

The most surprising thing I've read lately related to impulsiveness is that men who have had fewer sexual partners have more babies. I take that to mean that at least monogamy is being selected for. Possibly lower impulsiveness is also getting selected for. I'd like to see an impulsiveness study on middle aged men and women where they are questioned about their offspring. Do less impulsive people have more babies? That'd be good news if so.

Share |      Randall Parker, 2009 September 04 02:17 PM  Brain Economics


Comments
Solar Dude said at September 4, 2009 4:07 PM:

> Someone who takes the 45 now is turning down a 56% return in just 3 months

There's a little more to this than simple inability to delay reward or gratification. The subject must trust that the larger amount of money will still be available in 3 months, that the one making the offer is honest and reliable. In a society or environment where people are dishonest or untrustworthy, it would be rational to take the immediate reward, rather than risk winding up with nothing a few months down the line.

Business speculators operate by the same principle. When selling a house (real estate flipping) or merchandise, it is more rational to take the immediate offer rather than hold out for a more lucrative offer, because the market may change suddenly. Long-term rewards depend in large part on stability, honesty, and reliability, characteristics which are in shorter and shorter supply these days.

Anonymous said at September 5, 2009 1:10 AM:

Solar Dude:

Not immediate. Have to wait 3 days.

Clarium said at September 7, 2009 7:14 AM:

"Someone who takes the 45 now is turning down a 56% return in just 3 months. You can't expect such a person to save for their rent let alone for their retirement. The rest of us end up paying thru taxes and other means to support the most impulsive."

That is an investors dream... well, the S&P 500 returned that much (give or take) since the March bottom... but in order to get those gains, one has to time to the bottom correctly (if one is a little late or early, one might not get a 50% gain), and one has to take risd from that position. But 56% with requiring no skill, knowledge, or timing, is so good. Of course, other asset classes such as bonds or t-bills do not yield that much.

Randall, what are the discount rates for losses and gains. I suppose humans are more risk averse.

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