Save money by thinking Cyclic rather than Linear

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rob
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Save money by thinking Cyclic rather than Linear

Post by rob »

Thought this was interesting.....
Thinking about time as a cycle of recurring experiences — a reality Bill Murray’s character knows all too well in the movie Groundhog Day — may help us to put more money away into our savings, according to new research. The findings are published in Psychological Science, a journal of the Association for Psychological Science.
http://www.psychologicalscience.org/ind ... y-way.html
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Boglenaut
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Re: Save money by thinking Cyclic rather than Linear

Post by Boglenaut »

I don't get what they mean. Did they present any examples?
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Dale_G
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Re: Save money by thinking Cyclic rather than Linear

Post by Dale_G »

I didn't get it either - no definition of linear or cyclical. I didn't bother to follow the links, but I did email the author asking for definitions.

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carorun
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Re: Save money by thinking Cyclic rather than Linear

Post by carorun »

Lifehacker posted a link as well, and I'm also not completely sure what this article means. I get that looking at habits not experiences is important, but most life events (buying a house, having a baby, retiring) occur in linear fashion. The article reads like we're living in Groundhog Day.

http://lifehacker.com/increase-savings- ... 1490674643
ja16351
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Re: Save money by thinking Cyclic rather than Linear

Post by ja16351 »

For me, it works like this... Every time I had to pay an annual bill or some other recurring expense (and I hadn't saved for it) , I added it to my savings every month. After a year or so, I now have those expenses saved for every time they come around. I even estimated how long the tires on my cars will last and then figured out how much to save for their eventual replacement. I don't know if it is what the article is referring to, but in my mind these expenses are "cyclical," and by thinking of them this way, it does force me to save more. It sure beats being "surprised" by them every time they come up.
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nisiprius
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Re: Save money by thinking Cyclic rather than Linear

Post by nisiprius »

"Tam and Dholakia hope to explore just how far the effects of a cyclical mindset might extend, not just in financial decision-making but in various domains, including health."

Maybe they are planning to publish one of these cycle-logical paper every Christmastime.
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VictoriaF
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Re: Save money by thinking Cyclic rather than Linear

Post by VictoriaF »

I followed the OP link to the press release and agree with the others that the essence of the linear vs. cyclical thinking is impossible to discern. We have to wait until the actual article is published.

My guess is that this is related to the time-value of money. Previous behavioral economics work has established that people value getting money today more than getting it in a week, and that the difference disappears when the one-week gap is a year away. This new research seems to extend the findings to saving money.

Another possibility is that this research is another way to promote life-cycle planning and consumption smoothing. When one takes a life-long view and translates it into some stable amounts that she will be receiving for as long as she lives, she becomes more motivated to save in order to boost these amounts.

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SpecialK22
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Re: Save money by thinking Cyclic rather than Linear

Post by SpecialK22 »

Yeah, I agree; It's kind of a cryptic article. I think what the article might be suggesting is that the focus should be on creating repeat behaviors that build towards a long term goal. For example, the goal should be saving $x of every paycheck for retirement, rather than a more vague or general saving for retirement. In other words, an individual should focus on meeting short term, concrete, and achievable savings goals routinely rather than focusing on a singular distant goal in the future. Certainly not unique thinking, and many others have addressed similar concepts. The book The Automatic Millionaire immediately comes to mind. I'm sure there is more to the research though.
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Re: Save money by thinking Cyclic rather than Linear

Post by Professor Emeritus »

In my work I quote the sage OOGWAY as saying "there are no accidents" Cf Kung Fu Panda

In a world where you do not accept the concept of an accident, "unusual events" are in fact "usual". People tend to treat sudden expenses as "one offs" rather than thinking of life as a series of "one off" expenses that recurs in a more or less cyclical pattern. People routinely do linear extractions from good times. So do corporations and municipal pension managers.

Saving for these cyclical but unpredictable expenses takes special discipline. Or super natural acumen
cf Genesis 41
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Re: Save money by thinking Cyclic rather than Linear

Post by FatMoneyClip »

Boglenaut wrote:I don't get what they mean. Did they present any examples?
EXAMPLE: Buying wrapping paper AFTER Christmas :wink:
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Re: Save money by thinking Cyclic rather than Linear

Post by YDNAL »

rob wrote:Thought this was interesting.....
"Interesting," how?
  • I believe this is mostly psychobabble ("create abstract goals, boosting the ability to make concrete plans").
  • Those who save do, others don't; and the future is unknown, Leona and Utpal!
Leona Tam of the University of Wollongong in New South Wales, Australia, and colleague Utpal Dholakia of Rice University, hypothesized that the conventional wisdom for saving money — orienting toward the future and striving to reach savings goals — may not be the most effective tactic because it leads people to create abstract goals instead of clear plans about how to put the money away. People who think about savings in linear terms may be overly optimistic, assuming they can always save more down the road.

A cyclical mindset, on the other hand, encourages people to think of life as a series of interconnected recurring experiences. As such, the researchers hypothesized that a cyclical mindset should make people less likely to defer saving money by boosting their ability to make concrete plans and decreasing overly optimistic thinking about the future.
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nisiprius
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Re: Save money by thinking Cyclic rather than Linear

Post by nisiprius »

It certainly sounds like psychobabble to me. Or one of those miserable attempts to get "scientific proof" of something that some group believes for some unscientific reason.

It is pretty sad though when the press account actually gives more details than the source it references. The kernel of the experiment seems to be this.

"Participants who [received instructions X] and those who [received no instructions], on average, $130 to $140 after two weeks. By contrast, participants [received instructions Y] put away about $223, roughly 82% more than the other two groups."

My objections are:

a) TWO WEEKS? This is a joke, right?

b) What were the directions, and how do we know other more straightforward directions might not have given far more dramatic results?

c) How do we know the key difference was the "cyclic" vs "linear" difference, rather than pessimism/optimism, or that the winning directions were just better written than the losing directions?

d) Is it actually true life is a "series of interconnected recurring experiences?" If not, even if it produces desired results, is it wise or even ethical to encourage people to believe things that are not true?

e) Since savings are not a goal in themselves, and since inducing a mindset is a tradeoff, was it all net-positive? If group Y saved more but was more worried and anxious than the other groups, was it overall a good thing?

"Two weeks" sounds almost like a joke. What was the "interconnected recurring experience" and how many times did it recur in the two-week period? I may belong to the elite, but during my entire life I've never been paid oftener than once every two weeks (usually twice a month). In any case, saving is a big-fraction-of-lifetime activity. Two weeks? Imagine testing a diet plan by looking at weight loss over two weeks.

One wants to know precisely how the investigators avoided disclosing their personal expectations to the participants.

Above all, one wants to know what the directions given were, and how they compared to other kinds of directions. Maybe neither of them were the directions that a commonsense Boglehead might have given if we wanted to motivate savings behavior.

They themselves practically volunteer an obvious opportunity for confounding results: "As such, the researchers hypothesized that a cyclical mindset should make people less likely to defer saving money by boosting their ability to make concrete plans and decreasing overly optimistic thinking about the future.... people in the cyclical mindset group were able to save more, at least in part, because they developed more concrete plans and were less optimistic about future money-making in comparison to their linear-thinking counterparts."

So is it the shape of the thinking, or is it simply optimism versus pessimism? How would the groups have fared if X had merely been given optimistic propaganda inducing a carefree, lackadaisical attitude--"do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air*; they do not sow or reap or store away in barns..." and Y had been shown Disney's cartoon about the three little pigs?

Or if group Y had simply been given the goal "see whether you can save so many dollars over the next two weeks?"

Finally, I think that once you bring optimism and pessimism and mindset into the picture you start to ask about the goals of the experiment. I understand that it is interesting to find out what you can do to induce people to save more. But in the larger sense that's not a goal in itself, and there are ethical and happiness considerations in the very idea of encouraging people to fool themselves for their own good.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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bertilak
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Re: Save money by thinking Cyclic rather than Linear

Post by bertilak »

nisiprius wrote:It certainly sounds like psychobabble to me.
I think someone just liked the movie Groundhog Day and was looking for a way to mention it in a paper. They even got to throw in Bill Murray!

The mention DID make me think about things a bit. In the movie Bill Murray was lucky that he didn't also get "reset" each morning but was able to retain whatever knowledge, skills and insights he acquired each cycle. How this might help us with our investments is not clear -- perhaps just the simple idea that "the more things change the more they stay the same." In other words, learn from your mistakes. I know, pretty lame.

BTW, I really like that movie and appreciate the irony of me watching, and enjoying, it more than once. Didn't help me learn to play the piano though.

(And Andie MacDowell still never heard of me. :( )
Last edited by bertilak on Sun Dec 29, 2013 8:58 am, edited 1 time in total.
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Re: Save money by thinking Cyclic rather than Linear

Post by pkcrafter »

Here's a link to the SSRN site where you can download the paper.

http://papers.ssrn.com/sol3/papers.cfm? ... id=2353158

Paul
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Re: Save money by thinking Cyclic rather than Linear

Post by VictoriaF »

pkcrafter wrote:Here's a link to the SSRN site where you can download the paper.

http://papers.ssrn.com/sol3/papers.cfm? ... id=2353158

Paul
Hi Paul,

Thank you for the link to the paper.

The difference between the two groups was that the "cyclical" subjects were told that the life consists of cycles and their financial behavior in the current cycle will repeat in the future cycles. The "linear" subjects were told that the life is a progression and the current behavior will affect the progress. (I am simplifying.)

The experimental setup seems light, as Nisiprius has described earlier, but the underlying idea is intriguing. Speaking for myself, I tend to save more when I think that my life is expanding in new directions than when I think it stays the same.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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