A decision point is a concept from behavioral economics that may help you make your decision-making processes more rational rather than automatic. According to researchers like Dilip Soman, a decision point is “any intervention that is designed to get people to stop, pause consumption, and think a little bit”.
Let’s explain this concept with a bag of crisps. Imagine that on one hand you have a 100g bag of crisps. On the other hand, you have a bag that contains four bags of 25g of crisps. In both cases, the total amount of crisps is the same; 100 grams. Researchers have observed that people are more likely to finish the bag of 100g of crisps in one sitting because all you have to do is open the bag and keep eating. On the other hand, making an effort and opening a bag of 25g of crisps each time makes you pause and evaluate if you really want to eat all that amount of crisps. And people tend to eat fewer crisps when given the second option.
The same logic can easily be applied to monetary savings as well. Researchers helped some families in India save 40 rupees over a two-week period by putting such amount into simple envelopes and sealing them. Because tearing the envelope and getting the money out requires deliberate thinking and effort, people were more likely to think twice, and they were able to save money.
Research shows us that each one of us has an impulsive part and a self-controlled part. And applying decision points may help our self-controlled part to put a brake on our impulsive part by creating checkpoints to stop and think before we act.
You can use a few tricks to create your own decision points.
- You can create a transaction cost such as taking a part of your salary at the beginning of each month and putting it into a separate savings account from which you cannot easily withdraw money because of interest rates etc.
- Similarly, you can use reminders on your phone to create decision points to remind you to stop and think before you take any action; or,
- You can create deliberate interruptions to one of your consumption routines. Let’s say you got yourself a bag of chocolates. Just like in the crisps example, you can separate the chocolates into four or five small bags and seal each one of them. By doing this, you will have created an interruption to your chocolate consumption. Kind of creating a transaction cost, really.
You can make use of decision points in a wide variety of areas in your life, especially if there is something you want to gain control of. Now, take a moment to think about your daily habits. Is there any area where you can apply decision points to help you develop healthier eating or consumption habits? Do you think you can use decision points to increase your savings? Who, in your circle of friends or relative, can benefit from using decision points?