What does economics tell us about making New Year's resolutions?

Opportunity cost was the first thing that came to mind the other day after the thought occurred that I should perhaps consider making a New Year’s resolution. That was probably because I just happened to be paying attention on the day the concept of opportunity cost was explained when I was at university many years ago. 

Opportunity cost is just a label. If you haven’t had the benefit of studying economics you might still be aware that the time and effort you spend making resolutions and trying to keep them could possibly be spent doing something more enjoyable. You may also be aware that there are emotional costs associated with making resolutions and then failing to keep them.

On the other hand, by now some of you will be thinking that opportunity costs are just excuses for inaction. You might want to urge me to consider the potential satisfaction of making resolutions that might enable me to become a healthier or better person.

That is why my mind now turns to the law of diminishing marginal utility. That law says, more or less, that as you obtain more of any good, the additional happiness you obtain from each additional unit tends to diminish. Every wine drinker should know that a larger increment of happiness is likely to be obtained from the first glass of wine than from the second, and a larger increment of happiness from the second than from the third, and so on. If the truth of that observation is not obvious to you on New Year’s eve, it might well become very obvious on New Year’s day.

It seems to me that the law of diminishing marginal utility applies to New Year’s resolutions in much the same way as to other goods. For example, a person who swears a great deal might gain some satisfaction if she can refrain from using foul language in the presence of children. The further increment she obtains from refraining from swearing in front of people whom she knows to be disgusted by the behaviour, might be somewhat smaller. The increments in satisfaction could be expected to become progressively smaller as she adds further classes of people or situations.

All this brings to mind the image of a scissors diagram, regarded as a thing of great beauty by many economists of my vintage. The downward sloping line in the diagram below represents the declining marginal utility of resolutions and the upward sloping lines represent the rising marginal cost of resolutions (expressed in utility terms). If you are having difficulty viewing the quantity of resolutions as a homogenous good, think of the horizontal axis as measuring the extent to which you might consider reducing your use of a particular swear word over the next year. 

I have drawn two cost curves in the diagram to illustrate how the optimal investment in resolutions would change if it became less costly to make and keep resolutions. The initial optimum is at point A, where our subject makes a relatively small investment in New Year’s resolutions. If it became less costly to make resolutions, the optimum would move to point B. At that point she would make more resolutions - and her total utility would be higher.

So, what does economics have to tell us about how to reduce the costs associated with New Year’s resolutions? An obvious place to look is behavioral economics. It is not difficult to find articles on the internet suggesting how we can use behavioral economics to help us to stick to our resolutions. Much of the underlying research is more in the field of psychology than economics, such as the work of Roy Baumeister on willpower (which I discussed here).

In my view the area of economics that has most potential to help us to understand and reduce the costs associated with making and keeping resolutions is ‘identity economics’. The key idea of identity economics – as explained in a book of that name by George Akerlof and Rachel Kranton - is that individuals gain satisfaction when their actions conform to the norms and ideals of their identity. In the way Kranton and Akerlof develop the concept, identity is determined to a large extent by the groups to which individuals belong. 

However, when you think about your own identity, as an autonomous individual, you are free to think of it as being defined by the qualities you value most highly - or identify with. (There is some relevant discussion in a recent post in which I reviewed Russ Harris’s book, The Happiness Trap.) Recent research by Anthony Burrow and Nathan Spreng, which suggests that having a purpose in life tends to impede impulsivity, points to the potential benefits of keeping in mind the qualities we value most highly.

This brings to mind the potential to draw a possibilities diagram showing trade-offs between some of the things I value. On one axis is excellence and on the other axis is tranquility. I will leave it to your imagination.

Postscript

On reflection, it doesn’t seem to make much sense to think in terms of trade-offs between excellence and tranquility. It might make more sense to think in terms of a trade-off between satisfaction with professional achievement and satisfaction with relationships, as shown below. An investment in emotional health might expand the possibilities available.

Why wish everyone a Merry Christmas?

Why not? It is that time of the year again. It is a custom I grew up with. It is a widespread practice in the country in which I live.

So, does that mean my seasonal good wishes are intended to apply only to people who share a similar cultural heritage?

Actually, when I think about it, most of those who share a similar cultural heritage will probably think I am just hoping that they enjoy the customary things that many of us enjoy at this time of year - attending parties, going on holidays, preparing for celebrations, meeting with family members, exchanging gifts, feasting, getting “merry” etc.

Even if none of that applies to you, I still wish you a merry Christmas.  No-one is excluded from the sentiments of the Christmas message: Peace on earth and goodwill to all. (That might or might not be an accurate translation of relevant scripture, but it is the one I read on Christmas cards – and it is good enough for a non-church-goer like me.)

Christmas gives me a convenient excuse to express my hope for you to enjoy tranquility and opportunities to flourish in all aspects of your life.

How can we avoid the happiness trap?

The idea that pursuit of happiness can be futile has been around for thousands of years. In my last post, I discussed J S Mill’s contribution in the 19^th Century. In this post I will discuss the contribution made by Russ Harris in The Happiness Trap: Stop struggling, start living, which was first published in 2007. This book is based on Acceptance and Commitment Therapy (ACT) developed by Steven Hayes.

Russ Harris suggests that many people are caught in a happiness trap, which is based on four myths:

1. Happiness is the natural state for all human beings;
2. If you’re not happy, you’re defective;
3. To create a better life, we must get rid of negative feelings; and
4. You should be able to control what you think and feel.

It would be easy for me to become side-tracked into a discussion of how prevalent the happiness trap might be. The survey evidence suggests to me that in high income countries most people are actually fairly happy, but the picture that emerges does differ depending on the way happiness is measured. For example, at a national level high levels of positive emotion are not always accompanied by low levels of negative emotion. It is also possible for a substantial proportion of the population to experience chronic anxiety and depression at some time during their lives, despite the sustained existence of relatively high average happiness levels.

The important points are that too many people are falling into the trap of struggling to get rid of negative feelings and of attempting to control what they think and feel. I don’t think it is a myth that happiness is the natural state for most humans to be in: a majority of humans seem to have an inbuilt optimism bias. Nevertheless, there are times when it is natural, healthy and appropriate for humans to have negative thoughts and feelings. We cannot avoid having negative thoughts and feelings, but we can exercise a great deal of control over our responses to thoughts and feelings.

Harris argues that happiness has two very different meanings. The first refers to a feeling: a sense of pleasure, gladness or gratification. The second refers to a rich, full and meaningful life. The happiness trap is associated with craving the first form of happiness. If we seek to live a full and meaningful life at various times we can expect to experience the full range of human emotions, including sadness, fear and anger.

The author writes:

“The reality is, life involves pain. There is no getting away from it. As human beings we are all faced with the fact that sooner or later we will grow infirm, get sick and die. …”

But he provides grounds for hope:

“The good news is that, although we can’t avoid such pain, we can learn to handle it much better – to make room for it, rise above it and create a life worth living”.

So, how does the book suggest we go about creating lives that are worth living?  As I read it, the book does this by suggesting ways in which we can exercise and develop our personal powers (or capabilities) in relation to thoughts, sensations, values and goals. The underlying idea seems to be that if we manage to cope with unhelpful thoughts and unpleasant feelings, identify and endorse the values we want to guide us, set sensible goals for ourselves, act purposefully and engage fully in what we are doing, we will end up with lives that are worth living. That makes a lot of sense to me.

The approach suggested for coping with unhelpful thoughts or stories is to defuse them. The simplest technique suggested is to give yourself some distance from the thought by observing, “I am having the thought that …”. Many other techniques of defusion are suggested. One I particularly like is to thank my mind for the unhelpful advice it is giving me, and then ignore it.

The approach suggested for coping with unpleasant feelings and sensations is expansion -  that means making room for them rather than struggling with them. The three basic steps of expansion are: to observe the feelings and sensations in your body; breath into them; and let them come and go, or just stay there. If that sounds like Vipassana meditation, there are probably good reasons for that.

On the basis of my personal experience (as a consumer of self-help advice rather than a professional) I have doubts about the author’s recommendation to focus on the most uncomfortable sensation first. Acceptance of unpleasant sensations seems easier in the context of scanning my whole body, noticing and accepting all the sensations. Nevertheless, I particularly liked this comment:

“As you practice this technique one of two things will happen: either your feelings will change or they won’t. It doesn’t matter either way, because this technique is not about changing your feelings – it is about accepting them”. 

Russ Harris is of course not the first person to argue that we need to be guided by our values – our deepest desires relating to how we want to be and what we stand for – in order to have a rich full and meaningful life. For example, Aristotle emphasized the importance of values to individual flourishing, and Ayn Rand had John Galt develop a cogent argument leading to a definition of happiness as “that state of consciousness which proceeds from the achievement of one’s values” (Atlas Shrugged, p 1014). Harris underlines the importance of values by referring to Viktor Frankl’s observation that the prisoners who survived in Auschwitz were often not the physically fittest, but those who were most connected with something they valued such as a loving relationship with their children.

Harris suggests that people identify their values in all domains of their lives: family, marriage, friendships, employment, personal development, recreation and leisure, spirituality, community, environment, health etc. Many of the questions involve asking what sort of person we want to be and what qualities we want to bring to our experiences.

The next step is to set goals and action plans relating to our values for each domain of our lives. When reading about it, the process seemed as though it might be just as boring as corporate planning, but that need not be so. Findings of recent neural research (by Christopher Cascio and colleagues at the University of Pennsylvania) indicate that a focus on things we value in life -  referred to as self-affirmation – is associated with greater activation in parts of the brain that are known to be involved in expecting and receiving reward (the ventral striatum and the ventral medial prefrontal cortex).  A focus on what is most valued in a future context also involves more neural activity in areas associated with thinking about the self (the medial prefrontal cortex and posterior cingulate cortex).

It is worth remembering that the point of acting in accordance with our values is about the quality of our journeys through life rather than about reaching ultimate destinations.  As Russ Harris puts it:

“When we move in a valued direction, every moment of our journey becomes meaningful”.

I have written enough to provide a few hints about the contents of the book. My one criticism of the book (as a consumer of self-help products) is its failure to recognize that some cognitive approaches, e.g. Neuro-Semantics, can help people to adopt the frames of mind that they value, without having to engage in a struggle against negative thinking. Leaving that aside, in my view, this book has great value in helping readers to work out what they have to accept in life, what they can hope to change, and what commitments they have to make to make their lives more meaningful.