Working Paper: NBER ID: w20125
Authors: Alexander L. Brown; Joanna N. Lahey
Abstract: Saving when faced with the immediate option to spend is an unpleasant but not conceptually difficult task. One popular approach contradicts traditional economic theory by suggesting that people in debt should pay off their debts from smallest size to largest regardless of interest rate, to realize quick motivational gains from eliminating debts. We more broadly define this idea as "small victories" and discuss, model, and empirically examine alternative behavioral theories that might explain it. Using a laboratory computer task, we test the validity of these predictions by breaking down this approach into component parts and examining their efficacy. Consistent with the idea of small victories, we find that when a mildly unpleasant task is broken down into parts of unequal size, subjects complete these parts faster when they are arranged in ascending order (i.e, from smallest to largest) rather than descending order (i.e., from largest to smallest). Yet when subjects are given the choice over three different orderings, subjects choose the ascending ordering least often. Given the magnitude of our results, we briefly discuss the possible efficacy of these alternative methods in actual debt repayment scenarios.
Keywords: savings; debt reduction; intrinsic motivation; behavioral economics
JEL Codes: C91; D03; D14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| self-control (D91) | performance in ascending ordering (C69) |
| ascending task ordering (C69) | intrinsic motivation in debt reduction (G51) |
| descending task ordering (C69) | intrinsic motivation in debt reduction (G51) |
| task ordering (ascending) (C69) | completion speed (Y20) |
| task ordering (descending) (C69) | completion speed (Y20) |