Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Financial Planning > Behavioral Finance

Dan Ariely’s 6 Rules to Fight Bad Decision-Making Under Stress

Your article was successfully shared with the contacts you provided.

What’s it going to be tonight? Sautéed greens (good) or beef lo mein (bad)?

Behavioral economist and Predictably Irrational author Dan Ariely says being good or bad depends on what day you’re looking at—if it’s a Friday night at the end of a stressful workweek, you’re more likely to go with the beef lo mein; but if it’s a Sunday evening after a restful weekend, the vegetables will seem like the better choice.

“It’s on stressful days that many of us give in to temptation and choose unhealthy options,” writes the Duke University professor in his blog post “Understanding Ego Depletion,” published Wednesday. “The connection between exhaustion and the consumption of junk food is not just a figment of your imagination.”

What Ariely is describing is a behavioral phenomenon that he refers to as “ego depletion.” In other words, when we’ve said no to temptation long enough, our willpower gives out and we say yes. For financial advisors and their clients, the key to understanding ego depletion is understanding that the phenomenon is the same whether the behavior involves making bad food choices or bad investment decisions.

Resolutions most often get derailed in times of crisis, Ariely says, and he offers these six rules to avoid breaking under stress:

1) Acknowledge the tension, don’t ignore it. Ariely describes the internal dialogues we all have with ourselves :“I’m starving! I should go home and make a salad and finish off that leftover grilled chicken,” followed by, “But it’s been such a long day. I don’t feel like cooking. Plus, beef lo mein sounds amazing right now.”

The push-pull relationship between reason and impulse explains why we make bad decisions. Self-control is limited.

2) Call it what it is: ego depletion. “Eventually, when we’ve said ‘no’ to enough yummy food, drinks, potential purchases, and forced ourselves to do enough unwanted chores, we find ourselves in a state called ego depletion, where we don’t have any more energy to make good decisions,” Ariel writes.

Ego depletion is the psychological sum of the feelings of stress and exhaustion added to all the decisions you’ve made throughout the day.

3) Understand ego depletion.  Ariely points to research by Stanford University professor Baba Shiv and Indiana University Prof. Sasha Fedorikhin, who found evidence that people yield to temptation more readily when the part of the brain responsible for deliberative thinking has its hands full.

“Even a simple cognitive load can alter decisions that could potentially have an effect on our lives and health,” Ariely says.

4) Include and consider the moral implications. In a thought experiment that Ariely describes in his blog post, participants were asked to complete a color-matching task. When asked to then take a short quiz, the group that did the heavier mental lifting in the first task were more likely to cheat on the quiz.

“When we become depleted, we’re not only more apt to make bad and/or dishonest choices, we’re also more likely to allow ourselves to be tempted to make them in the first place,” Ariely writes.

5) Evade ego depletion. “There’s a saying that nothing good happens after midnight, and arguably, depletion is behind this bit of folk wisdom,” Ariely writes.

The best way to evade such depletion, he continues, is to plan for indulgences every now and then.

“The key here is planning the indulgence rather than waiting until you have absolutely nothing left in the tank,” he says. “It’s in the latter moments of desperation that you throw yourself on the couch with the whole pint of ice cream.”

6) Know thyself. Simply knowing you can become depleted, and knowing the kinds of decisions you might make as a result, makes you far better equipped to handle difficult situations when they arise, according to Ariely.

“The reality of modern life is that we can’t always avoid depletion,” he says, “but that doesn’t mean we’re helpless against it.”

Read an interview with Dan Ariely from Investment Advisor’s April 2010 issue on AdvisorOne.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.