Monday, June 05, 2023

In classical economic theory, people make rational decisions in their best interests. In real life, people make dumb decisions all the time.

The gap between ideal and actual behavior guarantees employment for financial behaviorists. They study human decision making and develop methods to guide us toward better outcomes, using things like default options, framing devices, mandatory disclosures, consumer education or tax incentives. But some research indicates a most effective way to improve our decision making is lot simpler: Make your important decisions in the morning, on a full stomach. Specifically, the optimal time for decision making is between 10 and 11 a.m., after a breakfast that features high-quality protein.

The science behind these conclusions is quite interesting. Professor Baba Shiv, from the Stanford Graduate School of Business, says serotonin, a hormone that has a calming effect on the brain, is at its cyclical high in the morning after awaking from sleep. In this serotonin-rich state we are better equipped to contemplate difficult or complex issues, and more likely to make good decisions.

Shiv says a breakfast featuring high-quality protein prolongs serotonin levels, typically to midday. But as serotonin levels decline later in the day, “we gravitate toward the status quo,” and resist making decisions. Indecision becomes our default preference.

Besides sustaining serotonin levels, a full stomach seems to encourage impulse control. A 2007 Dutch study found that fasted (hungry) individuals made riskier bets on a financial decision-making task involving lottery choices, while those who were full made the safer choice.

Another factor in favor of morning decision making: Most people haven’t yet encountered “decision fatigue” by 11 a.m. Repeated decision making exacts a cumulative physiological toll. John Tierney, co-author of Willpower: Rediscovering the Greatest Human Strength put it thusly in an August, 2011 New York Times article:

“No matter how rational and high-minded you try to be, you can’t make decision after decision without paying a biological price. It’s different from ordinary physical fatigue—you’re not consciously aware of being tired—but you’re low on mental energy.”

In light of both the chemical and physical factors at play, Dr. Amantha Imber, an Australian organizational psychologist, recommends scheduling major decisions and meetings before 11 a.m. whenever possible. If important decisions must be made later in the day, Dr. Imber says it is beneficial to schedule a rest period immediately before the meeting.

Seriously…This is a good idea.

In most households, money has a major role; even if it’s not front and center, money is always on the stage. There are car payments, mortgages, groceries and taxes to pay. There are retirement plans, college savings accounts and vacations to save for. For most of us, our money management isn’t on auto-pilot; we face dozens of financial decisions each day. Do you remember how many of these financial decisions, especially the really big ones, were made before 11 a.m.? Probably not. Our awareness regarding big decisions gets lost in the volume of decisions made every day.

But going forward, it’s worth asking: If you’re meeting with a financial professional after work to discuss your retirement allocation, an estate-planning strategy or a long-term care policy, have you already compromised your ability to make a good decision?

It’s probably not necessary or practical to insist that all important financial decisions be made before 11 a.m. And there is no guarantee that just because a decision was made in the morning it will be the right one. But if you can meet with your financial professionals in the morning, why not plan on it? And have a good breakfast.

By Elozor M. Preil

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