Why do we discount the future? And how might be combat this tendency? Comedian Jerry Seinfeld has a great bit where he highlights our human tendency toward what behavioral economists called "present bias": our preference for short-term gratification.
Here on The Tonight Show With Jay Leno, Seinfeld explains how Night Guy can mess with Morning Guy by staying up too late. "That's Morning Guy's problem. That's not my problem." It's a terrific (and humorous) insight into human behavior:
Night Guy, Morning Guy and the Markets
We see this tendency everywhere. In business, there is an urban myth circling that this present bias has forced the the average holding time for stock today down to 11 seconds. We have pumped computers full of algorithms and they do the heavy lifting, so this seems to make sense. While it's true that the average stock holding time is eroding across the globe, it's not 11 seconds. What used to be 7 or 8 years holding time for stocks has turned into 7 or 8 months (see graphic/source below)
We would do well to remember the lessons from Arie de Gues' The Living Company in which we studies companies that have been around for 500 to 1,000 years.
"Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations' true nature is that of a community of humans."
Combatting Short-termism and Valuing the Future
Seinfeld's poignant observation actually proves to have a psychological basis. Our mind really does play tricks on us. In this case of present bias, the science suggests we literally feel as though our future self is another person. And this person--and all those other future people--will deal with whatever can we are kicking down the street: from macro issues likes budget deficits to climate change to credit card debt to the personal like saving money and preventative health.
So what do we do about this tendency? How do we get back at Night Guy?
The Future is Closer Than You Think
To have a company that exists for 1,000 or a family legacy that persists after you pass, short-termism and the present bias must be defeated. This time of year, people set resolutions or goals for the New Year. But it struck me the other day that a year is too short.
Much like quarterly earnings reports can be limiting to judge business performance, a year is too short to judge life performance. When Paul Polman became CEO of Unilever he famously told Wall Street that quarterly earnings reports were a thing of the past. He wanted his company to think for the long-term and quarterly calls were creating a myopic culture. Similarly, I suggest that a year is too short for our resolutions. We should think over our entire life performance which, it turns out, is much longer than we think.
I think of Mary Jean and Frank Smeal, born in the early part of the 1900s who blessed thousands of students when they endowed the Penn State College of Business in 1990. Their legacy will literally touch millions of lives for countless years to come. The Smeal College of Business is now evidence and testimony to their lives.
Just how long is a human life? In the U.S., it depends of course on race, gender, socioeconomic status but we can say roughly 70 years. But what about the lives we influence? Not everyone has children, but since I do I thought about this through the perspective of being a father and future grandfather.