Why we suck at long-term (and how to get better at it)

Vishal Barfiwala
Mar 22, 2022
9 min read

We know a lot of things we need to do in life to succeed in the long term. Yet we miserably fail at them.

We know that exercising is essential for good health. We know that eating junk food will make us overweight, maybe even obese. We know that smoking increases the risk of cancer several fold. We also know that investing for the long term will help us build wealth, and that making rash decisions in the short term will lead to losses.

Yet we do the exact opposite of what is good for us in the long run - we binge eat, don't exercise, smoke, and gamble in the hope of making a quick buck. But why?

The lure of the short term

Let's start with a thought experiment:

Let's say I give you a choice - either I give you $100 today OR you come back after 1 week and I give you $120. What would you choose?

Now, let's modify this scenario slightly - either I give you $100 52-weeks from now, OR $120 53-weeks from now. What do you choose in this case?

If your thought in the first case was to take the $100 now, but in the second case was to choose the $120 after 53 weeks, you are not alone. In a large number of studies such a preference reversal is well documented.

We give an inordinately high weightage to immediate rewards, despite the rational choice being to wait it out for a higher reward (a 20% return over 1 week is phenomenal). However, when the rewards are in the future, we wear our cold, calculating, rational hats and make the optimal choice. And this preference for the immediate reward is aptly called the 'present bias', and also goes be the name ‘hyperbolic discounting’. It is among the many cognitive biases we have, which make us defy rationality, and lose sight of the long-term.

Our mental math prowess is limited

We are very good with mental math when it comes to additions and subtractions. When asked to multiplying divide, we can work with small numbers, but with some difficulty. For instance, if I ask you to multiply 17x24 mentally - you will be able to compute the answer mentally, but while you are working on it, you are actually straining your brain and body - your pupils actually dilate, you can't multi-task or even notice changes in your environment. However, you can estimate the range of the right answer in this case with relative ease, and guess that it would be in the 300-500 range and not in the 1,000-2,000 range, for instance.

Over the long term, however, compounding shows its effect. Capital invested compounds at the rate of return, effects of toxins compound in your body from regular exposure, networks compound and grow exponentially. And here is where we are completely clueless, because we are really really bad at exponential calculations (which is what compounding is). If I were to ask you what would the likely value range of $1 Mn compounding at 18% over 30 years be, which option would you choose?

A) $10-20 Mn

B) $50-80 Mn

C) $100-150 Mn

D) $200-250 Mn

Just think about the answer and choose an option in your mind.

Whatever your answer is, first think about you got to it? Our brains cannot compute this directly (for sure I can't, and I would think that is the case with most of us). There are some simple shortcuts such as the rule of 72 (which helps us estimate the number of years it would take to double our investment, given a rate of return), and unless you have used these shortcuts or heuristics (or a calculator), my guess is that your answer is a guess too. It is based on a hunch, and unless you are really familiar with these numbers, there is a fair chance you have chosen the wrong option. The answer is the third option, by the way.

The point of this was to highlight that it is so difficult to even grasp the impact of long term, simply because we primates with our limited brain power can’t visualize it. So, how then, do we even motivate ourselves to overcome our short term temptations and do what’s right for the long term?

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Our future selves are strangers to us

Seriously.

If you get inside an FMRI (Functional Magnetic Resonance Imaging) scanner and think about yourself, a specific portion of your brain lights up (because it gets activated). That region is called as the Medial Pre Frontal Cortex (MPFC). Think about other people, it doesn't activate as much.

There have been FMRI studies where when people were asked to imagine themselves in the future, and it turns out that their brain is thinking about a completely different person - the MPFC doesn't light up (or is dimly lit) - indicating they don't associate yourself as much with that future person. Even more interestingly, the farther ahead one imagines himself/herself, say 30 years from now rather than 15 years, the activation of MPFC is markedly lower in the 30 year case. Link to one of the studies on this here.

This behavior of our brain, combined with its other idiosyncrasies makes it very difficult for us to care about our future selves. Hence making it difficult to act in a manner beneficial to that future self, at the cost of our current self.

To quote the UCLA researcher Hal Hirschfield

Why would you save money for your future self when, to your brain, it feels like you’re just handing away your money to a complete stranger?

Now that we have looked at a few reasons why we struggle to take action keeping the long-term view in mind, let's look at what we can do to get better at it.

Break-up the long-term goal into a series of short-term targets

The journey to the long term goal is certainly going to be filled with a number of obstacles, detours and distractions along the way. They are going to lead us astray, and lose sight of our long term goal.

One simple hack is to break-down the long-term goal into a number of short-term targets. Want to lose 10 Kg in a year - why not have a 1 Kg Target for the first month. Want to be able to do 100 push-ups at a stretch - try to have incremental goals of 1 push-up the first day, 2 on the second, and 10 by the 10th day. If you want to have $2 Mn for retirement - try having yearly saving and investing goals and re-look at your financial plan every year. Achieving these intermediate results motivates us to strive for the next challenge.

This is beautifully illustrated by James Clear in his wonderful book Atomic Habits, where he emphasizes the power of small wins:

It is so easy to overestimate the importance of one defining moment and underestimating the value of making small improvements on a daily basis.

Build conviction to endure the ups and downs

This is the biggest reason copy-cat investing (investing in public portfolios of well known investors), or following recommendations from folks on TV / Twitter / Online just doesn't work. Once we invest, at the first sign of trouble we bail out - simply because we haven't done our homework, and do not have the conviction to wait out the turbulence. This is equally applicable in other long-term pursuits such as developing expertise in a game or a subject, developing trust among clients etc.

There is no substitute to good old hard work. We need put in the effort and the time to develop conviction that this is the right approach, the right investment, the right strategy. No doubt, there will be times when your conviction proves to be wrong, and that mistake will be another step on refining your process. However, at least you will end up enduring your actual strategy rather than abandoning it because you just aren't sure. And hopefully, with time, your hit-rate improves as well.

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Bind yourself with the Ulysses contract

As the Greek mythology goes, the warrior Ulysses (also referred to as Odysseus) was returning after winning the Trojan war. On his way back, he realized that his ship would pass the island where the beautiful Sirens loved. They would sing such melodious songs that would leave the sailors enchanted. Incapable of rational thought, the sailors would end up jumping into the sea and drowning in an attempt to go to the Sirens.

Ulysses wanted to listen to the melodious songs of the Sirens without drowning. So he concocted a plan - He put wax in his men's ears so that they could not hear the Sirens, and had them tie him to the mast so that he could not jump into the sea. He ordered them to stay on course and keep their swords upon him and to attack him if he should break free of his bonds.

Upon hearing the Sirens' song, Ulysses was driven temporarily insane and struggled with all of his might to break free so that he might join the Sirens, which would have meant his death. However, his men kept their promise, and refused to release him. This act of binding yourself to take an action in the future, addressing the anticipated temptations and distractions is what is now called as a Ulysses Contract. Fortunately however, we don’t need to go to the extent of tying ourselves or using beeswax - there are more pragmatic ways for us to commit and bind ourselves in today’s world.

Need to bind yourself to go to the gym - give ten $100 bills to your gym-mate, and ask him/her to tear one in front of you for each planned gym-day missed ( I am sure you will cringe at the sight of it, and not miss a session after $200!). An SIP (Systematic Investment Plan) where amounts automatically get deducted for a certain investment is another example. Making a public commitment on doing something is another form of the Ulysses Contract - where you don’t want to be sorry / shameful in front of your audience, and hence, will meet the deadline. The list could go on, but you get the point.

Automate decision making

Develop a simple algorithm to make decisions.

Minimizing our intervention in making (or not making) decisions in the long-term journey will help reduce the impact of our inherent biases, and emotions which prevent us from achieving our goals. For instance, an SIP (automated monthly investing), in a fund consciously chosen for the long-term, will prevent you from making emotional decisions every month depending on the market scenario. An automated rule based asset allocation (when the equity market is pricey, allocate more to debt and vice versa) will help overcome greed and fear.

In fact, this also helps in fields such as medicine, law etc. where we strongly rely upon experienced experts for judgement calls. For instance, it was observed that in parole assessments, the highest rejection rate of applications was before lunch, and the judges were particularly generous after lunch. Similarly, in an experiment, doctors were shown a number of scans, and were asked to diagnose them, and sometimes gave different diagnosis for the same scan repeated at different points in time.

The Nobel prize winning psychologist Daniel Kahneman, in his wonderful book Thinking Fast and Slow, has highlighted the numerous fields where counterintuitively simple (and even crude) algorithms trump over human expert decisions with decades of experience, almost every time:

..medical variables such as the longevity of cancer patients, the length of hospital stays, the diagnosis of cardiac disease, and the susceptibility of babies to sudden infant death syndrome; economic measures such as the prospects of success for new businesses, the evaluation of credit risks by banks, and the future career satisfaction of workers; questions of interest to government agencies, including assessments of the suitability of foster parents, the odds of recidivism among juvenile offenders, and the likelihood of other forms of violent behavior; and miscellaneous outcomes such as the evaluation of scientific presentations, the winners of football games, and the future prices of Bordeaux wine.

Conclusion

Long-term is hard. We are not designed for it largely because in our evolutionary history satisfying the immediate, short-term need was what maximized our chances of survival. We lack the capability of appreciating exponential outcomes, which result from slow and steady compounding over long term. And we don’t associate ourselves far into the future with, well, us!

That is not to say that we can’t do anything about it. We do have some tools in our swiss army knives to stick to our long-term goals and commitments. First, break up the long-term goal into series of achievable short-term targets which motivate us to move on to the next. Do the hard work to build conviction / skills to help you stick the course. Bind yourself with a Ulysses contract, taking decisions today to avoid stupidity by your future self. And lastly, automate decision making to avoid bias laden decision making.

What is your approach to stick to long term? Let’s hear about it in the comments.

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