César You may think that habits are boring, mundane, or even annoying. But what if we told you that habits could be the secret sauce to unlocking your full potential? Indeed, habits possess the power to make you smarter, happier, healthier, and more successful. How? By applying the economic approach to habit formation. In the world of The Economic Man, where even economists get a raised eyebrow for not being on top of their game, we’re delving deep into the realm of cultivating habits. Yep, you heard it right—habits that pay off. So, get ready to put on your thinking cap because it’s time to explore how economics can assist you in changing your behaviour for the better.
First, let’s talk about the economics of habit formation. How do you decide which habits to adopt and which ones to avoid? Well, you can think of habits as investments; you’re putting in the effort now to reap the rewards later. Just like you would invest your money in a profitable venture, you should invest your time and energy in habits that give you the most value. But how do you know which habits are worth investing in? You need to spot the high-yield habits, the ones that yield (of course) more than you put in. These are habits that have a positive impact on multiple areas of your life, such as your health, happiness, productivity, or relationships. For example, hitting the gym regularly can improve your physical and mental well-being, boost your confidence, and increase your energy levels. Learning a new skill can enhance your creativity, expand your knowledge, and open up new opportunities. Adopting a healthier lifestyle can prevent diseases, lower your stress, and save you money. These habits may seem hard at first, but they pay off big time in the long run. Of course, building good habits is not always easy or fun, especially in the beginning. You may face resistance, temptation, or boredom. You might need to bid farewell to some bad habits you’re still stuck with, or even other good habits that are just not as beneficial! This is where the cost-benefit analysis of habits comes in.
You need to weigh the pros and cons of each habit and see which one gives you the most value. You also need to consider the opportunity cost, which is the value of the next best alternative that you give up when you choose one habit over another. For example, if you decide to watch Netflix instead of reading a book, you’re giving up the opportunity to learn something new, improve your vocabulary, or enjoy a different story. Every time you decide to do something, you’re also deciding not to do something else. So, make sure you choose wisely. Sometimes, you need to endure a little discomfort now for a future of high-fives and success. Following our gym analogy, habit building is “sweating today for a six-pack tomorrow”. You need to have some short-term grit for long-term glory. You need to remember why you started and what you’re aiming for. You need to have a clear vision of your desired outcome and a realistic plan to achieve it. You need to track your progress and celebrate your wins. You need to be willing to change. And many other “you needs” that I won’t mention here because I think I’ve made my point clear 😉 But don’t worry, you don’t have to do it all by yourself. You can use some tricks from behavioural economics to make it easier!
In case you haven’t read my previous entries on behavioural economics, let me define it as “the study of how people make decisions”. It offers some useful insights on how to change your behaviour, one of them being the power of nudges. Nudges are subtle cues that influence your actions without you noticing. For example, you can tweak your environment or routine to make good habits the easy choice. You can set the healthier snacks at eye level in your pantry, put your gym clothes next to your bed, or schedule your learning sessions at the same time every day. These simple changes can have a big impact on your behaviour. Another trick is to outsmart your own brain. Your brain can be a bit tricky, but you can learn how to beat its quirks and turn them into allies for building awesome habits. For instance, you can use the reward system of your brain to motivate yourself. You can reward yourself with something you enjoy after completing a habit, or you can make the habit itself more enjoyable by adding some fun or variety. You can also use the habit loop to automate your behaviour. The habit loop consists of three elements: a cue, a routine, and a reward. The cue triggers the habit, the routine is the habit itself, and the reward reinforces the habit. By repeating this loop over and over, you can make your habits stick. You can also use the social proof to get support from others. Social proof is the tendency to follow the behaviour of others, especially when we’re uncertain or insecure. This can be used to your advantage by joining a community of like-minded people, finding an accountability partner, or sharing your goals and achievements with others. It’s an easy way to help you stay motivated, inspired, and accountable.
So, what are you waiting for? Start building those habits that pay off today. By embracing change, the Economic way, you’re not merely playing it safe; you’re gearing up for a life filled with better ideas, better habits, a clearer mind, and laser focus on what truly matters. Even in the wild world of The Economic Man, habits matter. And they can make all the difference.
NOTE: I’m sure you’ve heard about most of these, but here’s a list of some of the best books to read if you want to expand your knowledge about habit building 🙂
- Thaler, R. H., & Sunstein, C. R. (2009). Nudge: Improving Decisions About Health, Wealth, and Happiness. Penguin.
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Clear, J. (2018). Atomic habits. Random House Business Books.
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Ariely, D. (2009). Predictably irrational: The Hidden Forces that Shape Our Decisions. HarperCollins UK.
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Kahneman, D. (2012). Thinking, fast and slow. Penguin UK.
