Why Do We Do It Even Though We Know We'll Regret It?

The Secret of My Mind Uncovered by Behavioral Economics

New Year’s Resolutions That Fail Every Year, The Secret of Expensive Gym Memberships

As the saying goes, “Well begun is half done,” we always vow to be better than yesterday. At the start of each year, we set ambitious goals like quitting smoking, dieting, or learning a foreign language, but somehow these resolutions often end in three-day commitments. Have you ever experienced buying an expensive gym membership with great determination, only to have it gather dust in a drawer, turning into a “donation certificate”?

Is it really because we lack willpower or are lazier than others? Behavioral Economics says no. This field challenges the traditional economic assumption that humans always make rational and logical decisions. At the intersection of psychology and economics, it deeply explores how humans, believed to be rational, actually make irrational and impulsive choices, and what hidden ‘reasons’ lie behind those behaviors.

This article embarks on a journey to answer that very ‘why?’. It’s like getting a user manual for my mind. Once we understand why we acted a certain way, our next choices will surely change.

Chapter 1. The Battle Within: ‘Present Me’ vs. ‘Future Me’

The biggest reason our resolutions repeatedly fail is the constant battle inside us between the ‘present self’ and the ‘future self’. Behavioral economics explains this with the concepts of ‘Present Bias’ or ‘Hyperbolic Discounting’. Simply put, people tend to prefer small immediate rewards over larger future rewards. This powerful bias causes us to continually fail in achieving long-term goals.

1.1. Case Study: The Paradox of Gym Memberships

The experience of signing up ambitiously for a gym at the new year but barely going and wasting money is a classic example of present bias. It’s not just laziness but the result of ‘overconfidence’ where the present self excessively believes, “Future me will definitely exercise regularly!”

Stanford professors DellaVigna and Malmendier’s famous gym study clearly illustrates this. According to their research, members who chose a flat monthly fee over $70 visited the gym an average of 4.3 times per month. This means they paid over $17 per visit. Yet, there was a cheaper alternative: a ‘10-visit pass’ costing $10 per visit. Still, 80% of monthly fee payers visited the same number of times but paid more, losing an average of $600 (about 830,000 KRW) during their membership.

More interestingly, these members canceled their contracts on average 2.31 months after their last gym visit. They not only believed future selves would exercise but also overestimated that they would cancel immediately if they stopped going. People paid a premium for the ‘flexibility’ option but underestimated their own ‘future inertia’, failing to act on that flexibility and wasting money twice. This is not a matter of poor math but a systematic error caused by ‘failure of self-awareness’—an inability to accurately predict future feelings and behaviors.

Cost and Loss Analysis by Gym Contract Type

Source: DellaVigna & Malmendier (2006)

1.2. Case Study: The Common Enemy Behind Diabetes and Smartphone Addiction

Present bias is not limited to financial matters. It deeply affects various areas of life such as health management and addiction.

A study at Keimyung University Dongsan Hospital on type 2 diabetes patients revealed fascinating findings. Patients were divided into an ‘inpatient group’ with poor blood sugar control and an ‘outpatient group’ with manageable conditions. They underwent a Delay Discounting Task, choosing between “a small amount of money now” and “a larger amount (100,000 KRW) later” to measure how quickly they devalue future rewards.

The results were striking. The inpatient group discounted future rewards much more steeply than the outpatient group, showing a significantly higher delay discount rate. There was a clear negative correlation between HbA1c levels (a key blood sugar control indicator) and the valuation of future rewards.

This decision-making pattern was also found in studies on adolescent smartphone addiction. Teens classified as at risk for smartphone addiction had significantly higher delay discount rates, indicating greater impulsivity.

Though these cases seem different, they share the same cognitive mechanism. The brain’s failure to resist immediate temptations like sugary, fatty foods leading to poor blood sugar control is essentially the same as procrastinating important tasks for the instant pleasure of smartphones. Present bias is a fundamental ‘cognitive trait’ that shapes not only financial decisions but also health and well-being. This explains why simple advice like “exercise more” or “stop using your smartphone” often fails. The problem lies not in willpower or lack of information but in the brain’s fundamental way of evaluating rewards.

Chapter 2. When Willpower Is Not Enough: Designing Smart Systems for Success

If the ‘present self’ struggles to overcome the ‘future self,’ what can we do? Behavioral economics advises not to blame willpower alone but for the ‘present self’ to design clever devices that prevent the ‘future self’ from succumbing to temptation. These are called ‘Commitment Devices.’

2.1. Odysseus’ Wisdom: Bind Yourself

In Greek mythology, the hero Odysseus had to sail past the Sirens, whose beautiful songs lured sailors to death. He wanted to hear their song but not wreck his ship. What did he do? He ordered his crew to tie him tightly to the mast and not to release him no matter what he said, while he plugged his ears with wax.

This is the perfect prototype of a commitment device: the ‘present self’ (rational self) preventing the ‘future self’ (entranced by the Sirens) from making irrational choices. Like Odysseus, we can anticipate our future weaknesses and apply wise self-binding systems in our lives.

2.2. Case Study: Nobel Prize-Winning Savings Program, ‘Save More Tomorrow™’

Richard Thaler, a behavioral economics pioneer and Nobel laureate, designed the ‘Save More Tomorrow™ (SMarT)’ program, a highly successful commitment device that turns human weaknesses into strengths. It dramatically increased savings rates by cleverly leveraging loss aversion and status quo bias (inertia)—two reasons people struggle to save.

• Key Principle 1 (Using Loss Aversion): People resist increasing savings because they perceive an immediate pay cut as a loss. SMarT solved this by linking savings increases to future pay raises, so participants never felt an immediate reduction in take-home pay, reducing psychological resistance.
• Key Principle 2 (Using Status Quo Bias): People dislike changing established plans. SMarT exploited this by automatically increasing savings rates whenever pay rose, requiring participants to actively opt out to stop saving more. Most did nothing, letting inertia drive higher savings.

The results were remarkable. Average savings rates among participants tripled from 3.5% to 13.6% in just 28 months. Even more impressive, 80% stayed enrolled through four pay raises.

The genius of SMarT lies in not blaming or trying to fix human flaws but using them as a foundation for success. This marks a paradigm shift from self-improvement to designing better systems that acknowledge human nature. This is the essence of ‘Libertarian Paternalism’, which respects individual freedom while guiding better outcomes.

Savings Rate Changes of SMarT Participants

Source: Thaler & Benartzi (2004)

2.3. Case Study: The Butterfly Effect of a Small Savings Account in the Philippines

Commitment devices have the potential to transform not only individual goals but also social relationships and structures.

Ashraf, Karlan, and Yin collaborated with a bank in the Philippines to launch ‘SEED (Save, Earn, Enjoy Deposits)’, a special savings product. When opening an account, customers set a savings goal and date, and until then, withdrawals were blocked—creating a commitment savings account.

The experiment was highly successful. After 12 months, the group offered this product increased their average savings by 81% compared to a control group. Notably, women who showed present bias tendencies in pre-surveys were significantly more likely to enroll, indicating that those aware of their self-control difficulties actively sought commitment devices.

Most surprisingly, women who joined gained noticeably more decision-making power within their households, leading to increased purchases of durable goods (e.g., appliances) and real shifts in household power dynamics. This shows well-designed financial products can be tools for social empowerment, beyond mere savings.

2.4. Case Study: South Korea’s Controversy Over Automatic National Pension Enrollment for High School Seniors

These behavioral economics principles are now extending beyond personal life into national policy. The ongoing debate in South Korea over automatic national pension enrollment for 18-year-old high school seniors is a prime example of a large-scale commitment device or ’nudge’.

• Policy Details: The government automatically enrolls all 18-year-olds in the national pension system, paying their first month’s premium.
• Goal: To close the pension coverage gap affecting 53.3% of young adults aged 18–34 and extend contribution periods to strengthen retirement income security.
• Behavioral Economics Principle: Overcoming young people’s status quo bias and procrastination by setting automatic enrollment as the strong default option.
• Controversy: Concerns about funding and fears that automatic payments may weaken personal responsibility. This highlights the tension between respecting individual freedom and the state’s role in gently guiding citizens toward better outcomes—the core of nudge philosophy.

Chapter 3. The Invisible Hands: Forces Steering My Choices

Besides present bias, many invisible forces manipulate our decisions. Behavioral economics has uncovered various cognitive biases that distort our judgment. Here are a few examples.

3.1. Case Study: Food Stamps and ‘Labeled Money’

Traditional economics assumes “money is fungible”—a 10,000 KRW bill is worth the same whether earned or found. But our brains don’t think that way. We unconsciously attach labels like “free money,” “salary,” “emergency fund,” or “meal money” to money and treat it differently. This is called Mental Accounting.

Research on the US low-income food assistance program SNAP (formerly Food Stamps) provides strong evidence. Logically, recipients should integrate benefits into their monthly budget and spend steadily. But behaviorally, they spend a lot on groceries right after receiving benefits, then cut back drastically toward month’s end, sometimes even going hungry—a severe consumption cycle.

Crucially, total grocery spending exceeded SNAP benefits, meaning even households where SNAP money was effectively cash still showed a much higher marginal propensity to consume groceries from SNAP benefits than from cash. They labeled SNAP money as “meal money,” leading to overconsumption early in the month and painful shortages later—an irrational pattern.

3.2. Everyday Behavioral Economics: The Secret of Popcorn Prices and the Temptation of Sales

Our choices are heavily influenced by the ‘frame’ of information presented and the first number we see, called the ‘anchor.’

• Anchoring Effect: Seeing a price tag like “Regular price 20,000 KRW → Sale price 18,000 KRW” makes us feel it’s a bargain. The initial number ‘20,000 KRW’ acts as an anchor in our minds, setting a reference point. No one really knows if 18,000 KRW is reasonable, yet it feels cheaper.
• Decoy Effect: Ever noticed movie theater popcorn pricing? If small popcorn is 3,000 KRW and large is 7,000 KRW, you might hesitate. But if they add a medium popcorn at 6,500 KRW as a ‘decoy,’ suddenly the large popcorn looks like a great deal and sells like hotcakes. The medium isn’t meant to sell but to make the large more attractive and steer your choice.
• Framing Effect: A doctor saying “90% survival rate after surgery” versus “10% mortality rate after surgery” conveys the same statistic. Yet most patients feel much more reassured and willing to undergo surgery when hearing the former. The way information is framed can change our evaluation and choices by 180 degrees.

Conclusion: Regaining Control of My Mind’s Steering Wheel

Through this article, we explored behavioral economics principles hidden throughout life—from gym memberships to national pension policies. We are more irrational than we think, swayed by numerous biases, and prone to repeating regrettable choices.

But the key is that our irrationality is not random; it is predictable. Understanding which biases affect us in which situations is the most important first step toward better decisions.

Now, instead of blaming lack of willpower, we can understand the ‘systems’ and ’environments’ that lead us to irrational choices and redesign them to our advantage. Like Odysseus, we can create commitment devices for our future selves (setting up automatic savings on payday), exploit mental accounting wisely (splitting accounts for travel, events, emergencies), and recognize marketers’ clever framing and anchoring traps.

Behavioral economics doesn’t teach us to be perfectly rational humans. Rather, it offers the most scientific and practical guide on how imperfect, human we are, and how to make slightly wiser and happier choices. It’s time to reclaim the steering wheel of our minds.