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Mental Accounting & Why The Mind Is Not Enough

by | Aug 3, 2010 | Articles

Chances are you know somebody who has made a vow to go to the gym twice or three times a week, and even bought a gym membership, but never follows through with the promise.  You may even know people who don’t contribute to their company’s 401(k) plan, even though there is a benefit of a company match.  They’re walking away from free money!

Why do we do this?  Until recently, researchers (those who require scientific proof) were baffled by this strange behavior.  But now, a few studies help to explain how we make decisions, and the results may amuse you.

David Laibson, an economics professor at Harvard, has conducted research, which suggests that people do fairly complex mental accounting whenever they make decisions, and count future rewards (or efforts) as half as important as present rewards or efforts.  Perhaps our mothers and grandmothers were accessing this complex math when they came up with the expression “two in the hand is worth one in the bush.”

How does this work?  Suppose you get up in the morning and face the decision of whether or not to go to the gym.  In your mind, the effort of putting on your sweats and driving to the health club on any particular day can be given a hassle factor of 6.  The benefits (being more healthy and in better shape) can be assigned a benefits value of 8.  But the future benefit is discounted by half, so it has an effective weight, in your decision-making, of four.  Since 6 (the hassle) is greater than the benefit factor of 4 (eight divided by two), your mind decides to skip today’s workout.

In mathematical terms, Laibson says the decision to exercise today can be defined by the equation (-6) + (8/2) = -2.  The negative result means that the future benefits are not worth the immediate investment.

So why do people buy a gym membership in the first place?  Laibson offered an analysis of the PLAN (or initial inspiration or intention) to exercise, and the numbers come out very different.  The intention to go to the gym three times a week costs nothing.  The future effort of going to the gym (-6) will be discounted by half, and so will the benefits (+8).  Therefore, the mental equation you use when you buy the gym membership can be defined as 0 [the “cost” of planning to go to the gym three times a week] + (-6/2) + (8/2) = 1.  “Planning to go to the gym is a win,” Laibson explains, “chiefly because the planning itself costs nothing.”

Confirming research by two of Laibson’s students comes from their survey of health and fitness facilities in the Boston area; they found that the average cost of a gym membership is $75 a month.  Because people swipe their membership cards into the machines as they enter, there are detailed records of how often members actually go to exercise.  The researchers found that the average person goes to the health club four times a month, which means the average cost per visit is $19.  But, Laibson’s students discovered that these health clubs typically offer a $10 “pay per visit” rate.  Clearly, the people who bought their memberships intended to go at least twice as often as they actually did.  The mental equation around planning produces a very different outcome from the mental equation around execution.

Is there a way to change this mental accounting? Laibson suggests that you hire a coach who holds you accountable, perhaps adding a hassle factor if you don’t go to the gym.  Or arrange to meet a friend there three days a week, adding the issue of disappointing your friend if you don’t show up.  Or, consider a positive approach; promise yourself that you’ll get a reward with a fruit smoothie after you exercise.

While Laibson offers the above ideas, we prefer an integral approach; an approach that offers you sustainable and reliable growth and change. All of his suggestions focus on the mind and an outside experience to change behavior. If you hire a coach and require him or her to hold you accountable to your actions, what happens when the coach is no longer there to push you? Similar, if you rely on a friend, this is relying on someone outside of you (tapping into not disappointing another and harming a relationship) to keep you going. The final idea, using a positive reward is the closest to offering real change, if you bring enough awareness to your experience.

Again, the preferred approach is integral, which means that accessing your body experience through your cognition will form a valuable imprint for you to easily create new neurological pathways supporting your plan and intentions.  How does this look? Well, it means that you follow a practice that develops new capacities (new muscles) to assist you with your objective: exercise for health.  It means that you rely not only on your mind, but the added wisdom of your body to create sustained progress.

Set an intention to support your goal: I enjoy a healthy body, mind and spirit.

Set milestones:  I exercise a minimum of 3 days a week.  I tone my body by increasing muscle mass.

Actions: Each time I go to the gym, I follow this routine.

1. Register how energized (healthy) I feel before working out on a scale of 1 to 10. (1 being comatose and 10 being ready to cycle the Tour De France).

2. Stretch for 10 minutes.

3. Select a cardio practice for 30 minutes (swim, run, spin, etc.)

4. While cooling down with gentle breathing in my belly, I register my energy (healthy feeling) on a scale of 1 to 10.

5. On the way to shower, I celebrate and appreciate giving my body and mind healthy attention.

6. At the end of the day, record in a journal what you noticed from your work-out and valuable insights that came to you from going to the gym.

7. At the end of the week (month), measure your body mass index for changes.

Recognize the difference in this practice, where you access your body wisdom and rely on your own authority, as opposed to requiring something outside of you (coach, friend, fruit smoothie) to change.  The result with an integral practice is growth in your capacities and awareness.  You feel so much better when you exercise; you cognitively register the difference in your body and in all of your activities; you soon consider exercise and going to the gym as part of your way of being – it is no longer exercise but one of the activities of life that you enjoy.  That, my friends, is why the mind is not enough.  It can play tricks on you! J

When we practice integral wealth, this means we are accessing all available resources (including the body) to support your sustained success.  Your plan, your life desires and pursuits, are the objectives that guide the personal and financial practices and actions we offer you.

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