Present bias

Should I consume more today or save so I can consume more in the future? Should I eat more now or start a diet to be healthier later on? Evidence tells us something very simple: on average, we tend to give more importance to the present than to the future.

This tendency to overlook the long-term effects of our actions is called 'present bias', and it also shows up in financial decisions. Today's consumption weighs more than tomorrow's. Therefore, we tend not to save enough – for example, for retirement, or simply for a future major expense for ourselves or our family.

One cause of present bias is a self-control failure. Instinctively, our brain seeks immediate gratification; our rational side struggles to convince the instinctive side that planning is necessary to ensure future benefits. That's why we often fail to save adequately for retirement .

Self-control failure can be caused by psychological factors (impulsiveness, poverty, addictions) or physiological ones (hunger or thirst). These are tied to our evolutionary past: when we were hunter-gatherers, food had to be consumed immediately due to the lack of preservation methods.

Another cognitive error that complicates dealing with future uncertainty is the naive use of extrapolation: it occurs when we base our future predictions solely on past data, assuming that observed trends will continue linearly and unchanged. For example, if interest rates have risen in the past, we find it easier to imagine they'll keep rising, and vice versa. We simply project the past into the future, ignoring the possibility of significant changes. However, the future is uncertain and unpredictable.

How can we protect ourselves? Watch our video until the end for useful suggestions.