For many people, the end of the year is a time of reflection, introspection and self-appraisal.
While the festive season gives us licence to overindulge and make merry, the new year provides us with the opportunity to change behaviours and make improvements. We identify bad decisions we’ve made and resolve to make better ones.
However, in making new year’s resolutions we often fall victim to the same biases that caused us to choose irrationally in the first place, compounding problems rather than solving them. Oscar Wilde wrote that “there is a fatality about good resolutions – that they are always made too late”. He is possibly not the best person to advise on behavioural change given he could resist everything except temptation, but he is right about how difficult it is to change our behaviour, even when we know that we should.
If we are making new year’s resolutions, understanding our behavioural biases can help us correct for them and make resolutions that we might actually keep.
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When thinking about the future we tend to be optimistic, focusing on potential positives and neglecting to think about likely negative outcomes. This gives us a sense of control but often leads us to make the same mistakes repeatedly. Optimism bias can perpetuate irrational behaviours and explain, for example, why people engage in risky health behaviours such as smoking.
Although smokers are aware of the increased risks of diseases such as cancer, they optimistically think these bad outcomes will happen to others and downplay their own individual risk.
Relatedly, people can be overconfident in their own abilities to affect positive outcomes. This overconfidence is aptly illustrated by a YouGov survey taken just after the last Olympics that found one in four people in the UK thought they could qualify for the 2028 Olympics if they started training now. Considering Team GB for the Paris Olympics consisted of 327 athletes, out of a population of over 69 million people, the chances of any individual qualifying are vanishingly small. The levels of overconfidence though are extremely high, particularly for men and younger adults.
Optimism and overconfidence can lead us to set unachievable goals and estimates suggest that fewer than one in 10 people follow through on their new year’s resolutions. To correct for these biases and increase our chances of success, rather than shooting for the stars, we need a cold dose of reality when making resolutions.
[ My new year’s anti-resolution: to embrace glorious boredomOpens in new window ]
Contingency planning, or so-called premortems, can help. If we write down all the risks and potential obstacles in advance, we can reduce the chances of failure. We can also set more realistic goals if we consider the full costs of behavioural change, including the opportunity costs.
For example, if I resolve to exercise more this year there is an associated time cost; I need to consider where I take this time from and what opportunities I will miss as a result. Carefully considering all the potential obstacles and challenges reduces overconfidence and moderates our expectations as to what we can realistically achieve.
Try again, fail again, fail better
Even if we are not overly optimistic in setting our goals, we are creatures of habit and subject to status quo bias, preferring things to stay the same. We therefore need incentives to change our behaviours in the form of rewards for successes and/or costs to failures. A commitment device is a strategy or tool to help us break old habits, tailored to specific measurable goals. For example, if my goal is to give up something unhealthy such as alcohol, a digital wallet where I transfer money each time I forgo having a drink acts as a good incentive device. The monetary benefits are salient, and after a set amount of time I can reward myself by spending the money on something that I would not have otherwise bought. I can further increase my chances of success by publicising my resolution, either by telling friends or posting on social media.
[ There’s a science to keeping resolutions – and it needn’t be a marathon effortOpens in new window ]
Many of us are loss averse; we feel the pain of failure more intensely than we enjoy success. Therefore, we can be strongly motivated by that fear of losing face and more inclined to follow through with resolutions if any future failure is public.
However, if we’re reflecting on how to improve our decision-making next year, we need to be wary of the sunk-cost fallacy. Rational choices should be made by comparing the costs and benefits of different options, but a common mistake is failing to ignore sunk costs in the analysis. The time and money already spent on a particular action can’t be recovered no matter what you do next, so it shouldn’t be considered when you decide on your next action.
Irrationally though, loss aversion can cause people to continue along a particular path even when their best option is to cut their losses and quit, simply because they have already invested heavily. For example, someone who has built a home gym they never use might be tempted to buy a new machine and resolve to use it more next year; but rather than throwing good money after bad, they would be better off accepting that the gym was a bad investment to begin with.
[ My new year’s resolution? To connect moreOpens in new window ]
There is an old Chinese proverb that says the best time to plant a tree was 20 years ago – the second best time is now. The new year promises new beginnings, inspiring us to make changes that we probably should have made years ago. Adjusting for behavioural biases when making resolutions can increase our chances of success. Rather than fearing failure, if we fail, as Beckett said, no matter. Try again, fail again, fail better.
Emma Howard is a lecturer in economics at Technological University Dublin. David McWilliams returns next week
