Behavioural traps - Present bias

Traditional economic theories postulate that we are perfectly rational - even when making what are known as intertemporal choices, that is, decisions that involve both the present and the future. Should I spend more today, or save so that I can spend more tomorrow? However, evidence points to a simple truth: on average, we tend to give more weight to the present than to the future.

This tendency to overlook the long-term consequences of our actions is known as present bias, and it affects financial decisions too. The value we place on spending today often outweighs the benefits of spending in the future. As a result, we may not save enough - for example, for retirement.

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