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From the economics perspective, there are many things that we have in our lives, whether it be our retirement
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savings, whether it be, you know, [music] uh the investments that we want to make, whatever it is that come up
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over the course of the year and probably align with some of these dates where it's probably a good thing to kind
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[music] of do a rethink on some aspect of our financial life. [music] >> Absolutely. So um there are many
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decisions that we make where it would be great if we were more focused on the long run. In fact, there's a very
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well-known behavioral bias called present bias that leads us to focus [music] too much on now. Welcome to the
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ripple effect, the podcast that takes you on a journey through the minds of Wharton faculty. I'm your host Dan
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Looney and in each episode we'll be diving deep into the inspiration behind the groundbreaking research that [music]
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Wharton professors have conducted and exploring how their findings resonate with [music] the world today.
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Well, we certainly know that the new year is a time for people to think about change, what they can do to either
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improve [music] themselves and their lives or potentially even improve their professional lives. When you think about
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it though, it's a very important time for [music] individuals at this time of
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the year, but it could also be an important time for companies when they're thinking [music] about the
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change that they want to make and involve their employees as well. Katie Milkman is a professor of operations,
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information, and decisions here at the Wharton School. She's also co-founder
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and co-director of the behavior change for good initiative and she has studied a lot of this for a long period of time
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and a pleasure to have her joining us once again. Katie, great to talk to you. How are you?
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>> I'm great. Thanks for having me. Glad to be here. >> It is amazing and the work that you and
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Angela Duckworth and your teams have done about looking at behavior change. But for those people that haven't
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thought it about a lot, why do you think it is? Is it just the calendar? Is it the flipping from one year to the next
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that people start to think about making change in their lives? >> Yeah, it's a great question. Um, a
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little over a decade ago, I studied this with a former student uh at Wharton, UCLA's Hang Chen Dai. She and I along
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with Jason Reese started digging into what it is about certain moments that makes them particularly attractive to us
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as times to make a change. Um, what we found in our research is that when there is what we perceive as a chapter break
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in our life story and and we really actually see our lives as if we're characters in a novel with these
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chapters. If you think about, you know, the college years, the years working at company X, the years living in Boston,
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whatever it is, we put these brackets around time and we don't experience it
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continuously as a result. And whenever there is a chapter break and we enter a new era that feels like a new beginning
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to us, we're more motivated to pursue our goals. We feel disconnected from our
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past self. We can say that was the old me. This is the new me. The new me will be different. And those chapter breaks
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arise at predictable moments on the calendar as well as at times when we make uh meaningful change like a move to
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a new job or becoming a parent. Um New Year's is the biggest of the dates that
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signals a fresh start and a new beginning, but it actually happens every Monday uh at the start of a new month.
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It happens when we celebrate birthdays. So these come up a lot and the psychology behind them is around this uh
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thing we do it's called mental accounting um in the words of Nobel laurate Richard Thaylor um where we
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don't perceive time and other resources as fungeible across boundaries but instead we bracket them and so uh fresh
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starts arise a lot but the new year's is a really big one and we should seize it
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uh when when when it arises. So even you mentioned even it'll occur on Mondays.
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Just having that weekend break is something that can can make people kind of do somewhat of a reset.
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>> It's not even the break, which is an interesting point because that doesn't
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hurt, right? Having some disruption to your routine. Your intuition is right that that also can create a sense of a
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fresh start, but it's it's not a necessary condition. In fact, there's a
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really clever study that was done following our work on the fresh start effect by some researchers at UVA
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showing that um if you change the calendar someone's looking at and you make it look like the week starts on
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Sunday, which it by the way does in some religions and some cultures, um if you if you randomly assign some people to
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see calendars where the first day of the week is a Sunday and others see a calendar where the first day of the week
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is marked as a Monday, it shifts when people feel it's most appropriate to start pursuing a new goal to Sunday. So
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you don't it's not necessarily about the break and the refresh so much as it is
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um giving ourselves a sense of when a cycle begins. And so from the economics perspective, there are many things that
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we have in our lives, whether it be our retirement savings, whether it be, you know, uh the investments that we want to
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make, whatever it is that come up over the course of the year and probably align with some of these dates where
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it's probably a good thing to kind of do a rethink on some aspect of our financial life.
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>> Absolutely. So um there are many decisions that we make where it would be
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great if we were more focused on the long run. In fact, there's a very well-known behavioral bias called
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present bias that leads us to focus too much on now and not enough on a long-term outcomes and it leads to all
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sorts of problems for us like undersaving for retirement. It it contributes to that. I should say policy
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decisions contribute too, but uh it contributes to undersaving for retirement. Uh and and PS also not
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having enough money contributes to undersaving for retirement. But but present bias as part of it contributes
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to, you know, bad decisions we make about exercise, eating, smoking, you name it. Um if we're too focused on the
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here and now and how good things feel right in this moment, we won't make those long-term oriented decisions. The
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fresh start effect though gives us at least temporarily a little extra motivation to focus on the future and
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our future goals. And what we want to do with that extra motivation is ideally um
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put in front of people and put in front of ourselves opportunities to make small
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changes in the moment that will have big long-term effects. And one of those would be, for instance, saving um for
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retirement, starting to set up um automatic deductions to a 401k, for instance, if you work for an employer
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that offers one of these tax advantaged savings plans. And we did some research a number of years ago looking at whether
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or not inviting people to start saving for retirement by contributing to a 401k plan at their employer um on a moment
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when it felt like a fresh start would increase savings in the long run. And what we found is that relative to
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inviting people to save at some other future date that felt more arbitrary. You know, you could put it off and
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procrastinate two months, three months, whatever you prefer, uh it was better to
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tag that opportunity to a fresh start like the start of spring or someone's birthday. Um, and so that's one item
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that people might have on their mind. Is there something where you can make a one-time change when you have that
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momentary because it is temporary. That's a big problem with fresh starts, right? By by Wednesday, it's not a fresh
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start anymore. So, you want to seize that feeling that you have at the beginning of a new year that this is a
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good time to make a change and try to think of what's something consequential
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I can change once that will have big benefits. Savings decisions are often such a a a choice. You could think about
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um you know signing up for life insurance if that would really be a good decision for your family. You could
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think about you know if there's an important screening test that could have a big impact on the in the long run
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whether it's you know a colonoscopy. I know that's a weird thing to talk about
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at New Year's but yeah they're important or a mamogram you've been putting off.
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Yeah. Some of these like big one time you don't have to do it that frequently
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but if you use that motivation to make a big one-time change that can be particularly helpful. How frequently
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then as people do make some of these changes, whatever they might be, is it important for them to review the change
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and potentially make an adjustment on the change that maybe they made a year ago?
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>> Yeah, that's a great question. I mean, you know, in an optimal decision-making
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model, you'd kind of be constantly reviewing, oh, you know, I got a I got a raise or, you know, I lost my job or I I
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got married. Like, all of these things are constant. There's flows, inflows,
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outflows. In an optimal world, you'd be constantly re-evaluating and making sure
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all of the choices you've made remain perfect at this moment. But realistically, we don't have the
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cognitive capacity to do that. So, thinking about, you know, what is the right, you know, this could be one of
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your New Year's resolutions. Thinking about making a plan for the right frequency at which you do want to
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re-evaluate all the big decisions you've made in your life. Maybe it's monthly in
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the beginning of each month could be that uh little kick in the pants you need to say, "Okay, this is the moment."
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But maybe you don't feel like you need to do it even that frequently. Maybe it's quarterly or maybe it's even once a
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year at the new year that that's when you're going to sit down and re-evaluate. You know, do I have all my
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beneficiaries defined for all of my accounts and am I happy with them? You know, is my um is my will set up the way
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I want it to be? Have I gotten all my doctor's appointments and checkups in?
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So, whatever. Um I you know I don't think there's a one right answer but we
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should acknowledge that we don't do this continuously and these fresh starts can
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be a good opportunity to set up a plan and um for the valuation frequency that that feels right in our life.
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>> So when you think about fresh starts then from a business perspective and how
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companies may have to mix that in. >> Yeah. Is it easier for a company, especially one that might be publicly
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traded to do this because they kind of already have part of this schedule built into their year-by-year process?
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>> Absolutely. So, companies tend not to be the target of the research on the fresh
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start effect in so much as uh companies have a lot of procedures and planning in
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place both for legal reasons and reporting reasons. So, so I don't think of a company as the place where uh you
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know there might be major mistakes made so much as I think within the individual
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working in a company who makes choices both for themselves, the people they manage and their own advancement. Um
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that's where I think about fresh arts as being particularly useful. And actually
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this research initi it it came from uh making a visit to Google's headquarters
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out in Mountain View, California about 15 years ago for a big retreat that um where I was invited to present some
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research on how we could help employees make changes that would be beneficial for themselves and for their employer.
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So HR professionals at at Google are called um people analysts and the people analytics team was trying to figure out,
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you know, how do we get more employees to opt in to benefits we've offered that
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are beneficial for them and for us. Things like taking advantage of educational programs that they offer,
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taking advantage of their 401k match, taking advantage of their wellness programming. And I got this great
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question. The question was um from a senior leader there uh named Prasad um Si. He said, you know, when should we be
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putting these opportunities in front of people? I get that we should be sort of nudging them to adopt these things and
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using behavioral science insights when we present them, but are there opportune moments? And that's where the work
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really actually came from was the idea that for managers who are trying to figure out how, you know, when are the
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right moments to set up a goal setting meeting with an employee who's underperforming, when can I best nudge
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someone on my team to take advantage of an educational program we're offering so
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they could level up their software development skills? You know, when are those times? And that's what this
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research tried to answer. There are actually moments when your employees are going to be more open to making a
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change. And by the way, I should say it's not just at these calendar moments,
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but also at these um cycle ends within a company. And so they use it at Google now. They have a moments engine that
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triggers uh nudges and encouragement for people to take advantage of these kinds
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of programs at moments that they know are fresh starts. A >> and isn't it to a degree how that nudge
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is kind of delivered as well? I I mean you for the from the company's perspective, you probably don't want it
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to seem a little bit like bullying. You want it to be viewed as, hey, we're trying to help you out. We're trying to,
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you know, see if your life, your professional life, your personal life can be better. The the the messaging is
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very important here as well. >> 100%. That's true. Whether we're talking
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about a fresh start moment or any other moment to be um persuasive and to change
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behavior requires understanding that uh you know, people will react against anything that feels coercive and
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designed to extract value from them without creating value for them. And so in general we uh especially when it
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really is aligned and and that's what we study at the behavior change for good
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initiative. I don't work on projects where there isn't actually an alignment
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between the employee and the company or the customer and the company's best interest. When when that's the case, um
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we absolutely want to make sure that the communication is con conveying that that
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these are benefits everyone is better off, right? The employee is better off if they build their human capital by
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taking advantage of the educational programming that the employer is better off because they now have a better
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trained employee. Same is true for wellness programming. You're lengthening your life. Um but the employer is also
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getting more benefit from you because when you're healthier, you actually perform better at work. And so the idea
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is that um you want to make it clear you're not coercing. >> I know one of the things you have talked
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with me in the past about as well is not only making the promise, especially if it's a person making the promise to
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themselves. I'm going to do this. I'm going to improve this with my life is
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following through on it and and not breaking the promise and and the cost that can actually, you know, can be
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incurred by somebody when they don't follow through on a promise. >> Yeah. No, that's a great question. Um,
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we often fail to follow through. Follow- through failure is a major challenge. In
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fact, if you look at data on the fraction of people who follow through on an important health goal that they say
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they're going to execute on, or even something like, you know, turning out at
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the polls in an election, it ranges, but it's never, you know, in in in the data,
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it's somewhere like 50 to 80%. It's almost never higher than than 80% of
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people following through on a commitment to their future selves. um unless right
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we do a bunch of intervention work to try to really make it easy and really um support planning. So a lot of the work
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we do at the behavior change for good initiative is to identify what are the tools that we can give people and
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companies to help increase follow-th through on everyone's best intentions. Um some of the most powerful tools are
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just making it insanely easy, right? like how do I set you up for success by making it so that for instance if you do
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literally nothing you don't lift a finger the best outcome ensues right so there's this um wonderful research on
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defaults um which means you know the option that happens even if you take no action if you are defaulted into having
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a day on your calendar blocked for uh educational training or you're defaulted
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into automatically having a portion of every paycheck set aside and sent to a 401k um these are the kinds of things
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that lead to really particularly big benefits. But if you can't eliminate friction, just removing friction so it's
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as easy as possible for people to do the things that are in their best interest is really important. And short of that,
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you know, we can help people make clear plans about when they're going to do it,
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where they're going to do it, how they're going to follow through, and that also really increases success.
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>> Let me finish up with this because I I'm always interested, especially with the
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work that you've done, kind of what's next. And we always look at whether it be generationally or
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professionally, whatever it is, kind of the changes that occur as we move forward. What are some of the areas that
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you're most interested in kind of looking at right now in and around behavior change and and how we either
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accept it or push it to the side? >> I mean, that's a great question. So, I I
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would be remiss if I didn't mention the the buzzword that's in every hallway at
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the Wharton School, which is AI, right? So, we're thinking a lot about how LLMs
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can be supportive in this journey. How can they best be harnessed to help people achieve their goals? Like, what
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are the what are the ways, you know, that we can design LLMs that help people set up plans that help people um follow
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through on all the best behavioral science advice that that we know can create greater success rates when it
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comes to goal pursuit. So, that's absolutely one of the areas that's actively being pursued by our team. Um
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but you know we're interested in so many questions about habits um you know and
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can machine learning be used in other ways not just as a tool to help support people but also as an analysis tool to
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understand what are the strategies that people are using successfully um you know over the course of their lives that
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that we could then study and and help others adopt. So, uh, we have a lot of work underway using a wide range of
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different tools, but with the new, um, availability of of LLMs, there's a lot
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of potential there. [music] >> Katie, always great to talk with you. Look forward to chatting again
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throughout the course of the year. All the best. >> All the best to you, too. Thanks so much
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for having me. >> Thank you. Katie Milkman, who's professor of operations, information,
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and decisions here at the Wharton School [music] and co-founder and co-director of the Behavior Change for Good
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initiative. Thank you for listening to the Ripple Effect. We hope you found this episode informative and engaging.
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Don't forget to subscribe and leave us a review so that we can continue to bring
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you the best [music] insight from the Wharton School.