Richard Thaler, University of Chicago professor and most recent Nobel Laureate in Economics, once referred to Adam Smith as “the first behavioral economist.” Thaler’s assertion is based on numerous Smith writings that foreshadowed behavioral economics, a field that scarcely advanced for almost 200 years following Smith’s death. In The Theory of Moral Sentiments (1759), Smith penned,
The pleasure which we are to enjoy ten years hence, interests us so little in comparison with that which we may enjoy today. The [impartial] spectator [Smith’s rational overseer] does not feel the solicitations of our present appetites. To him the pleasure which we are to enjoy a week hence, or a year hence, is just as interesting as that which we are to enjoy this moment.
These words are quite powerful. Put differently, Smith is advising us to listen to our rational selves and realize the value of planning for our future. Our lives will be just as interesting 10 years from now, or for the young among us, 50 years from today.
However, it’s apparent that Smith’s admonition has not been widely heard or has fallen on deaf ears. In its May 2018 “Report on the Economic Well-Being of U.S. Households in 2017,” the Federal Reserve reported that over 40% of non-retired adults think their retirement savings plan is not on track, and another 20% are unsure about the adequacy of their savings. According to the Center for Retirement Research at Boston College, half of U.S. households are at risk of being unable to maintain their standard of living in retirement.
Interestingly, recent research has reinforced Adam Smith’s counsel and perhaps offered some guidance on how we might implement his advice. In an article in Social Psychology entitled, “It’s Time to Get Acquainted with Your Future Self,” Melissa Dahl reports that “most people think of their future selves as an entirely separate person from their present selves.” This begs the question: What can we do to feel closer to our future selves? UCLA psychologist Hal Hershfield and a team of Stanford University researchers offer at least one way to help people “cozy up to their future selves.” In a clever study, the research team showed young people images of their own faces digitally altered to appear 50 years older. While viewing their own images, participants were asked how much of their salary they wanted to allocate to their retirement saving. Participants who’d seen a glimpse of their future selves said they would save about 30% more than the control group that had only been shown photos of their present selves.
What lessons can we gain from this research? Since it is well known that our emotional responses are heightened by vivid examples, people might be inclined to save more if they look at an image of their future selves. Then again, using a cell phone app to digitally mature their appearance may make some people uneasy, so we might appeal to Smith’s impartial spectator to help us recognize that our future selves’ interests should be considered today.