How to plan for disasters and personal finance — with social psychology
There’s a great article in last weekend’s New York Times Magazine on disaster preparedness, which I want to use to highlight the social-psychological reasons for why we behave the way we do.
Read the article closely and notice the parallels between preparing for a disaster and preparing for your financial future. They are eerily similar.
Statistics on how few of us are prepared for a disaster, just like few of us are prepared for retirement:
In July and October 2005, the N.Y.U. Center for Catastrophe Preparedness and Response found that 50 percent of survey respondents reported their preparedness level as “about the same” after 9/11 as it was before, while 4 percent said they were either “somewhat less prepared” or “much less prepared.”
A number of things prevent us from preparing for disasters, including self-protective psychological factors that make us not want to think about it. The same protective mechanism works when you have people who are afraid to open their own bills, yet they keep on spending.
What prevents us from preparing for disasters? … Bad advice and false alarms discourage all of us from listening to authorities; the government’s calls for us to build atomic shelters or heed code-orange alerts have done more harm than good [Ramit's note: Just like Wall Street's constant drum for new products and BUY/SELL/DO ANYTHING!!! has inured us to taking reasonable steps with investments]. For the poor, scrambling to make it through the small crises of everyday life is far more urgent than planning for a possible emergency, and investing time in preparedness efforts seems relatively unimportant.
A key point: By offering us so many choices about what to prepare for, we do nothing. There is an exact parallel with the number of investment choices in a 401(k): “For every 10 mutual funds made available, the rate of participation in 401(k) investing goes down 2%.” That’s from The Paradox of Choice.
For everyone, there are opportunity costs involved in preparing yourself and your family for a catastrophe that’s unlikely to happen.
One major concern I heard was that there are simply too many things to worry about. Participants complained about having to prepare for too many specific disaster possibilities and in turn feeling overwhelmed, if not helpless.
Finally, a comment about how we don’t want to live in a culture of preparedness.
Beyond that, many people simply don’t want to live in a culture of preparedness. The notion is off-putting, and downright scary for some, because it seems to place fear and defensiveness at the center of our public and private lives. Careful planning means dwelling on the uncomfortable topics of our own mortality, the vulnerability of our loved ones and the fragility of our planet, and there’s a psychological price to be paid for that.
Using social psychology to motivate attitudinal and behavioral change
Let’s tackle the last point — that “we don’t want to be prepared” — which I disagree with. It’s a broad, overreaching statement to say that we don’t want to be prepared (and, in fact, that takeaway was taken from anecdotal research the reporter did from talking to some friends). But it’s an important one: Whether with disasters or money, it’s not that we don’t want to be prepared. Rather, the question is, “Under what conditions would we actually prepare?” Once you can identify patterns in people that do prepare, you can experimentally test and generalize.
Psychology experiment: How to get young people to get tetanus shots (or save money)
Rather than making things up, let’s turn to the social psychology literature to understand how this works. Howard Leventhal has been a prolific researcher in this area, and his study of tetanus shots is a seminal one.
First, the difference between attitudes and behavior: We all say we should be exercising more. We all believe we should read more high-quality publications. And if you asked 100 people if they should be saving more, 100 people would say yes. All of those are attitudes.
Yet, Americans spend more than they make, don’t read very much, and are fat, obviously violating their own attitudes with their behavior. Newspaper journalists will bemoan the American public for being “irresponsible” and “short-sighted,” but psychologists recognize that they need to ask the right question: What kind of message will get people to take action? Here, we turn to health psychology for an answer on how to help people do something that they agree is important, but need help making their behavior congruent with their attitudes.
Leventhal and his team decided to investigate how to get students to get tetanus shots. Once again, they varied the fear levels of their message and found that high-fear messages produced “favorable attitudes toward the tetanus shots among the students, and they also increased the students’ stated intentions to get the shots.” However, I believe Warren G. once said, “attitudinal decision-making ain’t shit.” (That is a complete lie.)
Indeed, a month after the experiment, only 3% of participants had gotten a tetanus shot. As we know, saying something is important doesn’t mean we’ll actually do something about it.
Leventhal was no fool. He added a clever twist that produced astounding results. He took the same messages and simply added a campus map, highlighting the location and times for tetanus shots. By removing the passive barrier, compliance soared to 28%.
The key was giving people a fearful message with specific instructions on what to do next.
Note: Please don’t run off screaming “I KNOW HOW TO MAKE PEOPLE DO THINGS BY USING HIGH-FEAR APPEALS!!!” The research is a little more complicated than that.
What’s the point?
The key takeaway is that informational messages alone, with no influence tactics, are the least persuasive of all. For example, if I simply write up a 1-pager on different types of retirement accounts, I can expect 0% compliance with any behavioral change. (Think about that. Most people believe, “If you have the information, you’ll make the right decision. That is entirely incorrect.)
Just adding fear to the message doesn’t change much: It’s generally ineffective at behavioral change on its own, particularly if the action is far off in the future and make me psychologically uncomfortable to think about (disasters, retirement). You must understand who your audience is and what persuades them.
So, how do you change your own behavior and your friends’ behavior? By experimentally testing your message — how it’s communicated, the persuasive elements within, who it comes from — and by adding specific instructions about what next steps to take, we can help people to make better decisions and, more importantly, take action for their own self-interests.
There are ties between disaster planning, personal finance, and social psychology. I hope this post stirs us to think about how we can better influence our friends to think about planning for their own best interests.
Note: Research was taken from Age of Propaganda, The Paradox of Choice, and The Tipping Point. All highly recommended.
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