Regrettable Prudence

Yes, you can be too tight-fisted. From  Anat Keinan and Ran Kivetz in the Harvard Business Review:

One of our studies—published in the Journal of Consumer Research—explored the regret felt by college students over their conduct on recent winter breaks and by alumni remembering winter breaks of 40 years ago. Regret about not having spent or traveled more during breaks increased with time, whereas regret about not having worked, studied, or saved money during breaks decreased with time. We saw a similar pattern in a study of how businesspeople perceived past choices between work and pleasure. Over time, those who had indulged felt less and less guilty about their choices, whereas those who had been dutiful experienced a growing sense of having missed out on the pleasures of life.
People who unduly resist self-indulgence suffer from an excessive farsightedness, or hyperopia—the reverse of typical self-control problems. Rather than yielding to temptation, they focus on acquiring necessities and acting responsibly and they see indulgence as wasteful, irresponsible, and even immoral. As a result, these consumers avoid precisely the products and experiences that they most enjoy. Their hyperopia can inhibit consumption in ways that are bad both for their own well-being and for marketers’ bottom lines. We don’t advocate trying to motivate consumers to make ill-considered purchases, of course, but marketers can help customers make appropriately indulgent choices that they’ll appreciate over the long term.

I love the little bit of pro-luxury “libertarian paternalism” in that last sentence. The very existence of hyperopia of course points to the problem in trying to design one-size-fits-all policy designed to save people from excess. Some people drink, gamble, and shop too little. It needs to be easier for them. And some people do too much. It needs to be harder for them. There is no way a planner can design a set of incentives that hits everybody's sweet spot.
[Thanks to DWAnderson for the pointer in the comments.]

Author: Will Wilkinson

Vice President for Research at the Niskanen Center