As humans, our decision-making process is biased towards maintaining the status quo, even if an alternative choice has substantial long-term benefits. This cognitive myopia and present bias, when applied to decisions that affect sustainability, could be threatening our future.
The long-term well-being and survival of the human species depend on forward-looking decisions that weigh current costs and benefits of different courses of action against future ones. The fact that, over the course of only a few centuries, we have nearly depleted the earth's fossil fuel resources, which took 300 million years to create, and that large portions of the earth are facing water shortages as the result of past and current consumption, suggest that we find it problematic to plan wisely for the future. Technological change — from the industrial revolution to the information revolution — might be advancing faster than our ability to rationally trade off current opportunities and needs against future ones, because our cognitive capabilities of self-control and prefrontal executive functions advance on a far slower evolutionary scale.
‘Rational’ decision-making that calculates the best course of action — by examining all available choice options and their immediate consequences as well as future consequences — is an assumption made in economics that requires perfect information and no limitations in processing capacity. ‘Homo economicus’, who is capable of making such decisions, is an aspiration and a convenient fiction that allows for the prediction of behaviour. By contrast, ordinary people (Homo sapiens) often use automatically activated associations, including emotional association, instead of rational analysis to guide their decisions. As a way of dealing with limitations in our cognitive processing capacity, we construct preferences based on partial information, assembling different subsets of information in a different order depending on how a question is asked. Several of the barriers to forward-looking decision-making result from such selective processing, which is both a liability, because of resulting inconsistency, and an asset, because it allows preferences to be influenced1.
Cognitive myopia and present bias
Human attention is limited and needs to be allocated strategically. Immediate survival is a priority, so greater attention is given to people and objectives that are close in terms of time and social distance than more distant ones. But the resulting cognitive myopia or shortsightedness makes it hard for decision makers to fully and accurately consider the future benefits of actions that are costly in the short term or do not have immediate benefits2. Studies of decisions that offer a choice between an immediate smaller reward and a later larger reward, conducted in both lab and field settings, show evidence of present bias (that is, a premium is put on immediate consumption). People often choose the immediate reward even if the reward is far less than what they could get in a year's time. For example, people turn down an interest rate of 100%, an order of magnitude larger than what they can gain in interest on the very best investments and instead choose an immediate payout that's half the size3.
Strong discounting of future consequences, in turn, explains the existence of societal challenges, such as the current global obesity epidemic, the popularity of balloon mortgages during the recent US subprime mortgage crisis, insufficient pension savings in countries that do not mandate such savings, and a general unwillingness by individuals, organizations and governments to engage in environmental preservation and damage prevention. In each case, the costs of future-oriented actions are incurred immediately, and the benefits that would compensate for such immediate sacrifices in consumption, quality of life or comfort levels come much later and with considerable uncertainty.
Even when decisions have future outcomes that are much closer in time (for example, the purchase of a new refrigerator or light bulbs), consumers heavily discount future cost savings that come with energy-efficient technology. Consumers shy away from energy-efficient appliances and compact fluorescent or light-emitting diode (LED) light bulbs, largely because of their greater upfront cost, even when future energy savings more than offset that cost.
Status-quo bias and risk aversion
Cognitive myopia focuses attention on actions or regimes that are already in place and makes us ignore available, but less salient, alternatives that could increase individual or public welfare. The result is a widely observed status-quo bias4 that has been shown for consequential financial decisions, for example, the purchase of liability insurance and social decisions such as signing up to be an organ donor5.
Arriving at a decision can be described as arguing with oneself — it is a process of automatically and unconsciously generating arguments for each choice option and the resulting balance of arguments drives the decision6. The choice option that is considered first has a large advantage; since status-quo arguments are usually considered first, this reinforces the status quo, unless people are explicitly prompted to first consider arguments for change6. As any change involves some degree of uncertainty and risk, primary consideration of the ‘devil we know’ is a risk-averse strategy that can be considered justifiable caution in many circumstances.
Status-quo bias is also associated with a lack of imagination. Henry Ford apocryphally suggested that, had he asked people what they wanted to improve their transportation, they would have opted for faster horses (that is, for incremental rather than revolutionary change). Current calls for ‘clean coal’ reflect a similar preference for incremental change. Unfortunately, for many of the environmental issues facing us today, business-as-usual is not a viable long-term strategy and delays in initiating broad technological and societal transformation can have large and potentially irreversible negative consequences.
Learning from experience
Getting hurt is a memorable and convincing reason to seek protective action — for children who touch the hot stove top or adults who invest in the wrong financial instrument. The frequency and magnitude of many ecological and technological risks cannot yet be personally experienced, but can only be communicated as statistical information derived from models or simulations. In such instances, for example, the assessment of climate change risks, vivid personal experience often dominates pallid, but vastly more reliable, statistical information. Decisions based on the personal experience of infrequent risks tend to underestimate their true probability, unless the event occurred very recently, in which case it gets undue attention. Thus, decisions based on personal experience are more volatile than rational decisions based on statistical analysis and description7. Empirical evidence for this pattern of response can be taken from an analysis of changes in property prices in the US state of Georgia after a major flood in 20048. House prices decreased for flooded properties, whether the house was inside or outside the floodplain, but prices did not decrease for non-flooded properties; the discrepancy in prices vanished after a few years. This is precisely the pattern of response predicted by decision-making based on recent experience.
Breaking cognitive barriers
The evidence supporting the existence of cognitive barriers to forward-looking decisions seems dire, in part because our natural way of making decisions evolved during a time when risks and problems were local and had short time horizons. And yet, most citizens and consumers are well-intentioned; few want to make it impossible for future generations to inhabit our planet. The problem is that other goals, which are closer to home both in terms of distance and time, get in the way of moving from intentions to action.
Fortunately, various interventions have helped Homo sapiens circumvent the barriers to future-oriented thought and decisions that do not exist for Homo economicus. Historically, this approach has included delegation of long-term planning to experts (for example, toxicologists or climatologists) and institutions (for example, national environmental ministries or the United Nations Intergovernmental Panel on Climate Change). More recently, libertarian paternalism (Box 1) has been replacing compulsory mandates with choice architecture interventions in various settings — from health care, to retirement savings, to energy use — that gently assist and guide individual long-term planning decisions past the siren call of immediate gratification9.
A simple, effective and broadly accepted way of overcoming present bias is to make forward-looking choice options (for example, green energy or energy-efficient appliances) the default10. Putting the spotlight of attention on the future in other ways (for example, by asking people to generate arguments for forward-looking options first6 or to consider how they will be thought of by future generations) is also effective.
When public policy tries to shift a given status quo towards a new state that has been identified as superior by experts with analytic assessment tools not subject to status-quo bias, policymakers should expect initial public opposition. But as the advantages of the new state are personally experienced and as the new state becomes the effective status quo, its advantages get to be considered first.