On Hold or in Overdrive: Decoding Inaction and Impulsivity
Behavioral economics has identified many psychological quirks and problems that negatively impact individuals’ decisions.
Two of the most basic tendencies that may lead to undesirable outcomes are inaction and impulsivity.
While the failure to act (due to procrastination or inertia) and acting too quickly (due to impatience or immediate gratification) are opposites with respect to behavioral outcomes, they stem from similar psychological processes. Both are responses to uncertainty that are rooted in our intuitive, automatic, and emotional System 1 (as opposed to the deliberate, controlled, and reflective System 2).
The Role of Self-Control
A key factor that contributes to both inaction and impulsivity is a lack of self-control. Individuals’ System 2 often struggles to regulate their System 1 impulses, leading them to place excessive weight on the here-and-now. For example, they may procrastinate their financial planning and favor spending money on short-term temptations rather than long-term needs.
Time Discounting and Risk Tolerance in Decision-Making
Whether or not a person is prone to impatience or even impulsivity depends on the extent to which they prefer present rewards over potentially larger ones in the future. In behavioral economics, this is known as temporal discounting. Would you rather have $100 today or $120 next year? After a light bulb blows, will you buy just one light bulb at $10 or three for $25?
Our knee-jerk reaction is often to maximize the amount of money in our pocket today. Being patient, on the other hand, is about seeing the big picture—a willingness to look at long-term costs and benefits. A problem may arise if this turns into an indefinite wait-and-see approach.
Whether or not patience is inaction in disguise may come down to another trait of interest to economists: risk tolerance. Risk-takers are often more impulsive, seeking quick rewards, while risk-averse people may avoid action due to a fear of uncertain outcomes. A risk-averse person might put off investing in the stock market, weighed down by uncertainty about picking the right point in time, while an impulsive person might invest in cryptocurrency on a whim.
Situational and Dispositional Factors
An illustration of people’s responses to contexts that involve uncertainty (due to too much rather than too little information) is provided by the concept of choice overload. For instance, some people may keep putting off a home insurance policy purchase because they feel overwhelmed with the available choices and the complexity of each option. Similarly, they may fail to switch an existing insurance policy even if a better deal is available elsewhere. Other people may buy the insurance based on a snap decision. In economic terms, both a lack of action and quick action may result from perceived costs of deliberation due to the time and hassle involved.
The tendency to either defer a choice or make an immediate decision can be seen in decision-making styles, which may also be applied more strategically. Individuals who prefer to satisfice will choose options that meet basic or simply “good-enough” decision criteria. For example, they may be happy to invest their retirement savings in a target-date fund, a pre-packaged portfolio that reflects the investor’s time to retirement. In some cases, satisficing may lead to impulsive decisions.
Individuals who maximize, by contrast, carefully weigh their choices to choose the optimal one. For example, they may decide to carefully design their own portfolio of stocks and bonds. As a result of their preference to process more information, however, they may be more prone to choice overload and deferral.
While satisficing can be a strategic preference rather than impatience in decision-making, a more dramatic and emotional perspective on impulsivity would be contexts that elicit a fight-or-flight response—an emotional reaction to stress. This idea suggests that stress can either trigger an impulsive behavior (fight-or-flight) or a freeze response, which results in inaction, especially if stress is prolonged. The source of stress could be in the scope or complexity of the decision (as suggested by choice overload), the importance of the decision (e.g., due to financial risks or being held accountable for the choice), or situational factors (e.g., stress induced by life events). Whether you are prone to inaction or impulsive action in a stressful situation can be assessed by questionnaires like the Fight Flight Freeze Fawn Test.
Behavioral Interventions
There are different kinds of behavioral interventions that work with inaction or impulsivity. These nudges either embrace the shortcomings or work against them.
The best-known nudge that harnesses inertia is the setting of defaults, such as automatic pension enrollments. Other interventions are designed to spur individuals into action by making decisions easier, such as simply reducing the number of pension plan choices. Alternatively, implementation intentions encourage individuals to create specific plans for when and how they will act, such as managing their finances.
When it comes to impulsivity, the disease (i.e., short-term thinking) can also be used as a cure. For example, giving people a limited time window to make changes to their insurance plan taps into a fear of missing out to counteract procrastination. “Keep the change” programs that round up purchases accept people’s spending behavior (which may be impulsive at times) in order to increase long-term outcomes in the form of savings. Similarly, impulse-saver programs provide app users with a “quick save” button to put away money on a whim.
Other nudges work against an excessive focus on the present and impulsivity. For example, programs that allow people to connect with their future selves via age-progressed photos have had some success in increasing savings behavior. Cooling-off periods for purchases are interventions that offset impulsive decisions.
Conclusion
To wrap up, inaction (decisions on hold) and impulsivity (decisions on overdrive) are opposite behavioral responses that may occur in situations of uncertainty, overload or stress. However, they have a common origin in our intuitive, automatic, and emotional System 1, as well as limited self-control.
In behavioral economics, these responses can account for a range of suboptimal decisions. Behavioral nudges may help by either acknowledging and using these shortcomings or countering their effects. Understanding the psychological roots of inaction and impulsivity is key to designing interventions that improve decision-making, particularly in high-stakes areas like financial planning or health.