Taking a cue from Alan, I just finished this article on behavioral economics—a growing field that explores how, and why, flesh-and-blood humans don’t behave like the “rational” profit-maximizers that underpin most economic models.

Some examples: real people fear losses more than we value gains, even though a “rational” economic actor would weigh them equally; humans punish bad behavior, even if it hurts our interests to do so; and we worry more about harms caused by people than harms caused by “nature” or chance (e.g., we fear terrorism more than car crashes, and murders more than heart disease).

And here’s something else: real human beings radically discount the importance of future events. Pleasure a year from now is little incentive, compared with pleasure right now; and the prospect of discomfort a year from now doesn’t seem particularly daunting. That’s why, when we’re faced with something that’s good in the short term (for example, yummy yummy donuts), but bad in the long term (say, weight gain), the short-term view tends to win, hands down.

Ok, this is not exactly a new insight about human nature: a bird in hand has always been worth two in the bush. And economists have long used “discount rates” to downgrade the value of future events, based on how far they are from the present.

But what seemed genuinely new to me is this: studies of brain function have shed a bit of light into what’s actually going on when we discount the future.

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  • Making any choice, whether short-term or long, activates the brain’s frontal cortex—the reasoning center. But when considering a short-term event, the limbic system—which governs emotional responses and intiutive congnition—kicks in too. But the limbic system doesn’t seem to care much about the future; its job is to maximize short-term gains.

    Which leads to this odd result: in an experiment in which subjects are asked to choose between $20 right now, and $23 a month from now, the subjects’ limbic systems are activated—and they tend to choose $20 now. (Bird in hand, and all that.) But change the offer to two future prospects— $20 in 2 weeks, vs. $23 in one month—and the limbic system pipes down; the choice is strictly in the hands of the “rational” side of the brain. And as a result people far more likely exercise patience & maximize their gains.

    Now, I’m probably reading way too much into this. But it struck me that it there may be a lesson here for enacting long-term reforms—things we really want to do, but may be painful or risky in the short term. The trick may be in the timing: commit to it right now, but put off the starting date until later.

    That’s more or less what California’s landmark greenhouse gas law does. It was passed this year, but the actual regulations (whatever they turn out to be) won’t go into effect until 2012. There are practical reasons for delaying the regulations: they have to figure out what they’re doing first. But perhaps because the program won’t start for another half-decade, the legislation appealed to the analytical part of legislator’s brains without kicking in their limbic systems. There was no fear of immediate economic effects or short-term electoral backlash.

    Obviously, this could be a recipe for empty promises. And policy advicates—like everyone else—tend to value immediate action over nebulous future gains. That said, if there’s a long-term issue that can’t get past a short-term logjam, then maybe it’s wise to take a lesson from the behavioral economists, and find a way to appeal to people’s rational side without activating their fight-or-flight reflex.