Would you rather pay $79.00 or $95.88 for the same service? Amazon just figured out how to get the $95.88 from some people.
People who sign up for Amazon Prime get “free” (but we know there is no such thing as “free”) 2 day shipping, access to kindle e-book lending and video streaming. The choice though is $7.99 a month or $79.00 for the entire year.
Making a decision about Amazon prime involves our ability to delay gratification. For many people, the current pleasure of a $7.99 bargain far outweighs the current pain of $79 even if we enjoy the benefit in 12 months by having 20% more in our pocket.
Scientists who study delayed gratification usually cite Walter Mischel’s marshmallow experiment. The experiment was all about self-control. Sitting at a table with a marshmallow or a cookie, a 4-year old was told he or she could have one cookie now or two by waiting a bit. After testing hundreds children, Mischel observed that some could last 20 minutes, others capitulated immediately, and the average resistance time was 7 or 8 minutes. The video below shows a wonderful example of a marshmallow experiment.
Decades later in a follow-up study, Mischel discovered that the SAT scores of children who held out for 15 or 20 minutes were 210 points higher than those who lasted only 30 seconds. The “high delayers” also had better jobs, were thinner, and more likely not to take drugs. Contemporary researchers are now discovering that parenting and genetics both can impact our self-control.
The ability to delay gratification, however, takes us far beyond Amazon Prime and marshmallows. At home, it relates to the housing crisis when many of us selected mortgages that were cheaper in the short run but then ballooned into massive unaffordable obligations. For business, it takes us to current incentives that lead CEOs to avoid long-term hugely beneficial investments because a short run project will get a fast return. And with government, we can cite excessive borrowing that reflects again an inability to delay gratification until it is affordable.
Sources and Resources: Thanks to my web designer Julian Foster who recommended the Wiredarticle that presents lots more detail about the Amazon prime offer. I also suggest looking at Nobel laureate Daniel Kahneman’s Thinking Fast and Slow for further discussion of self-control and gratification.
Observing young children, scientists believe they can predict certain adult outcomes. One classic study from the 1960s involved delayed gratification. A child and a single marshmallow were left in a room. The child could have one marshmallow now or two later. When interviewed 40 years later, those who resisted temptation as children had better jobs as adults. In New Zealand, a group observed 1037 children from birth to 32. Those with more self-control were more affluent. Also, they were healthier.
The Economic Lesson
If one segment of the population generates excess costs to society in health care, financial dependency and crime, then should schools provide early childhood self-control programs? The New Zealand team says yes if the cost/benefit ratio is good (p. 5).
An Economic Question: Which variables might you identify if asked to compare the cost and benefit of early childhood programs that develop self-control?
Is it possible that the marshmallow test relates to financial reform? As described in a 2009 New Yorker article by Jonah Lehrer and a WNYC Radio Lab podcast, a marshmallow test given to 4 year olds might predict adult behavior.
40 years ago, psychologist Walter Mischel began studying gratification by giving young children a choice. A child and a single marshmallow were left in a room. The child could have one marshmallow now or two later. 500 children were tested. Mischel concluded that at 4 years old, certain children can resist temptation. Some could last 20 minutes while others capitulated immediately. The average resistance time was 7 or 8 minutes. (Researchers also used chocolate bars and Oreo cookies.)
Years later, in a follow-up study, Mischel discovered that the SAT scores of children who held out for 15 or 20 minutes were 210 points higher than those who lasted only 30 seconds. Returning to the same people 40 years later, he found that the high delayers had better jobs and were skinnier.
Looking at other studies, Lehrer again found a connection between our “hard wiring” and our behavior. In his book, How We Decide, discussing the connection between our “decision making apparatus” and our financial behavior, he suggests that an unaffordable McMansion bought through a subprime mortgage could be increasingly attractive if the potential loss is long term and the gratification is current.
The Economic Lesson
And this is where we can return to financial reform. If the intersection of neurological and psychological research does indeed point to certain people having certain innately unhealthy tendencies, how much should government protect them and everyone else?