Friday, July 25, 2008

Instant Versus Delayed Gratification

I just read a news item on Yahoo! worldwide news on the economic outlook in Britain. According to a British research report, "Over a third of the people would run out of money in less than a fortnight (2 weeks) if they were unable to work, according to a new research." Here is the link to the story:

Now, isn't it funny that we are also reading similar stories about families in the US? Can there be a common thread to this? Besides speaking the same language, can we also be sharing a common behavior pattern that leads us both to the same predicament?

Remarkably, at about the same time, another story appeared on Yahoo! Finance. It was titled "Instant Gratification Nation: Can We Still Sacrifice for the Future?" Here is the link for this story:

The latter story starts with a study conducted at Stanford University on young children. Here is the first part in quotes: "In the late 1960s and early 1970s, researchers at Stanford University conducted a now-famous experiment using young children enrolled at Stanford's preschool facility. Experimenters sat the students at a table set with assorted objects that children of that age would find desirable (marshmallows, colored plastic poker chips, stick pretzels, and the like). The students were asked which of the objects they preferred.

Once that was determined, each student was offered an explicit choice that tested his or her ability to defer gratification: Get a reward now or a bigger reward later. The experimenter left the room, leaving a bell on the table in front of the student. If the student rang the bell before the experimenter returned, he or she would get a reward, albeit a less preferred one (a single marshmallow instead of two). However, if the student resisted ringing the bell until the experimenter returned (typically after 15 or 20 minutes), he or she would get something even better -- two marshmallows.

The remarkable thing about the study is that a student's ability at age four to defer gratification is correlated with better outcomes much later in life, such as academic and social competence. For example, one follow-up paper found a statistically significant relationship between how long a student waited to ring the bell and -- more than a decade later -- their "ability to cope with frustration and stress in adolescence.""

I have not found a follow up study yet on whether the four year olds got their tendencies through their upbringing or genetics. But once they get it, it appears to stay with them through their lives. Now, it is important to note that these kids are of pre school age. So, schooling apparently did not have anything to do with the outcome.

Now, what could those in each population do that affects our collective behavior? Those who preferred instant gratification, as the study implies, take a path that leads them to shoot for easier goals, spend more, save less, and make more impulsive decisions. Those who defer gratification are likely to sacrifice short term pleasures to shoot for more long term, challenging goals. For example, they may decide to defer social life to take more challenging courses in school. They may decide to work to pay their way through college instead of borrowing. They may spend a little extra time in college to get that graduate degree. And they are more likely to inculcate the same habits in their children at a very young age. A majority of people with the delayed gratification mentality will mean a nation of smart savers, and judicious spenders. When time comes to making a decision, whether in their profession or their personal lives, they will first look towards the long term viability of that decision, rather than the all too often "quick buck" decision making we see in businesses and personal lives of many people.

Contrast this to some other developed countries like Japan. During the 1970s oil crisis, the US Congress passed tough mileage requirements. The story goes that the Japanese auto industry hired 1000 more engineers to implement the change, whereas the Detroit automakers hired 1000 lawyers to fight the change. Today, Ford announced its biggest quarterly loss in History. Both Ford and General Motors today are worth about $17 billion, whereas Toyota is worth $144 billion, more than 8 times the total of both Ford and GM. This is only one case where delayed gratification has paid off. There are countless other examples of such decisions. Japan is not the only country with such practices. Korea, China, India, Singapore, Taiwan and other eastern countries have long observed such practices. India is investing in doubling its technical workforce by a factor of two in the next decade, while a third of its population lives on below subsistence wages. In 2004, there were 200,000 engineering graduates. In 2009, there will be 450,000. In 2014, there will be close to a million. The US numbers for the same professions have been shrinking, and are currently around 60,000 per year. There are no published programs or plans to increase this number significantly, despite all the noise about increasing the focus on math and science in schools. The culture we have in this country treats technical professions with disdain. Unless the culture changes, the outcomes are not likely to change.

So, is this some ethnic/national trait? History would say no. Both Britons and Americans deferred gratification during the two World Wars and the Great Depression. One can argue that there was no choice. There is some merit to this argument, because when times got better, the old behaviors returned. But it also means that if the same Depression era circumstances were to return, the behavior will also return. However, it is a case of the medicine being worse than the disease.

That only leaves the collective wills of people to change voluntarily, before circumstances force the inevitable. I am not betting on it, because in a democracy, the evidence needs to precede the need to change. But when convincing evidence appears, it may take a generation or longer to turn this ship around.

It is going to be a long and bumpy ride....hold on tight!


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