Hyperopia Effect

SHOULD YOU CONSUME TODAY OR CONSUME IN THE FUTURE?

Most of us would have had this feeling one time or the other.

We come across a “Sale” in a shop and see a nice shirt but restrain ourselves from spending because we feel that others would think we are “cheap”. We assure ourselves that it is money well saved for some future needs. After a few days we end up buying a similar by paying 20% more and regret our actions for not buying at the sale!

Think of another situation. You are planning for a vacation with your family 3 months in the future. With the oil prices increasing by the day you believe that the flight tickets would rocket in the next 3 months. You make a smart decision to book them now. Two months down the line you find that the price of air tickets have fallen more than 30% because of some OPEC agreement! You are kicking yourself for your decision to buy ahead of time!

The case is no different with managers.

Consider this. You are a well intending Project Manager and have been entrusted with a new project. You want to ensure project success and get more repeat orders from the customer. You are managing a Six months fixed priced project and want to maximize the project margin. Three months in to the project you realize that you need a specialist to manage the testing but you defer and induct a low cost resource, to maximize the margin. Very soon you realize that project timeline is going to overshoot as the new resource is incapable of handling the complexities. Result – The customer is unhappy and more resources are needed to correct the situation giving rise to more cost and much reduced margin!

Think of the other situation – Another project manager with a similar project wants to ensure that his project is successful and his customer his happy. He staffs top quality resources in his team. 3 Months down the line – though his project is cruising nicely he does not have any budget to continue!

Why does this happen?

Many of us tend to adopt strict measures today in anticipation of having a better tomorrow. In other cases we tend to overeat today because we plan to diet from tomorrow!

Behaviour scientists call this the hyperopia effect. This is opposite of myopia. It is so called because it comes when people look too far into the future while sacrificing the present. Behavior scientists also call this Saver’s remorse.

This of course does not mean that you should not save today but you should also not postpone your current consumption.

It simply means that one needs to strike the right balance between consuming today and consuming in the future.