Transcription of interview with Keith Chen on September 3, 2012.

Douglas Goldstein, CFP®, Financial Planner & Investment Advisor

Keith Chen is an Associate Professor of Economics at the Yale School of Management. He specializes

in behavioral economics and has covered a great deal of diverse topics, from economics

to psychology and biology. He has looked at how ex-prisoners would have looked different

if their conditions in prison would have been different.

Douglas Goldstein, financial planner & investment advisor, interviewed Chen on Arutz Sheva Radio.

Douglas Goldstein: Your newer research is related to language. You’ve spoken about

how some languages have a concept of the future and some don’t. What’s that all about?

Keith Chen: As a behavioral economist, one of the things that I work on most and study

is how people make decisions when those decisions involve critically aspects of time. How do

you like muster the will to save for retirement? How do you muster the will to wake up early

in the morning and exercise, and how do you muster the will to quit smoking? All of these

decisions basically feel like savings to an economist, and that’s because they all fundamentally

involve this idea that you have to endure some pain in the present in order to gain

pleasure and benefit in the future.

Douglas Goldstein: How does that relate then to the language that people use?

Keith Chen: The interesting thing that I started to notice was that when you look across countries

in the world, first of all, there’s vastly different savings. There’s vastly different

kind of tendencies of people to be able to sacrifice in the present in exchange for the

future. There’s a lot of different factors going on. There are obviously strong cultural

factors. There’s kind of experiences with depression and hyperinflation and all those

kinds of things, but a factor that stood out to me that economists had not thought a lot

about was differences in how your language forces you to talk about the future.

I was talking with some colleagues who are linguists and I was reading up on some of

the interesting work that they do, and I realized that in fact actually about 10% of world languages

interestingly enough have no systematic future tense in some sense. It’s a minority of

languages in the world, but there are some very notable examples, like Chinese and Finnish,

and languages like that that basically force their speakers to talk about the future as

if it were the present, to speak about the future in exactly the same way that they talk

about the present.

The interesting thing is that even though many of these languages are outliers in the

world in terms of how they talk about the future, almost all of those countries are

also outliers in terms of how much they save. They save tremendous amounts, and what I began

to wonder was if your language treats the future exactly the same way that it treats

the present, does that make the future feel more like the present, and does that make

it easier

to save?

In some sense, when you’re saving, your present self has to feel pain and your future self

gets to bear the fruit, and you see the rewards of that. In some sense, if your future self

feels more like your present self, if in fact you talk about these two people in the same

way, then that should make that activity easier.

Douglas Goldstein: This sounds like a very useful lesson. What can people do to adapt

this way of thinking within their own language?

Keith Chen: Since I’ve started this project, it’s actually interesting. If you look at

both financial advice and also personal goal advice, I’m not advocating this and I’m

not saying you should go out and do this, but many people who do get advice about how

people should be able to set goals that they can follow through actually advocate writing

down a list of goals and writing them down in the present tense. They say that this is

a more effective way of visualizing yourself achieving these things. There are examples

of this in Hebrew as well but you actually see oftentimes people trying to shift their

own or listeners’ perceptions of time by systematically and suddenly changing tenses.

For example, linguists call this the historical present. Oftentimes when you hear people talking

about past events, if they want to make them feel more present or feel more vivid, they’ll

talk about them in the present tense. You’ll hear someone recounting a story, “I see

my friend walking down the street and I say to him,” and obviously, you’re not indicating

that that’s happening right now.

Douglas Goldstein: How people can visualize the future? Are there other ways that people can really bring you closer to home?

Keith Chen: The main takeaway from a lot of my research is that people whose language

has suddenly encouraged them to disassociate the future from the present have a very difficult

time saving, but there are many ways that people in their own lives can try and emphasize

to themselves that they’re not toiling for no good reason like this. This all has future

rewards and future payoffs.

A colleague of mine at the University of Pennsylvania ran this fascinating study where he got a

company to agree to send digital photos from the company directory to him, and then he

just applied some very standard now software where you can digitally age people’s photos.

You basically take these smiling photos, headshots of people, and digitally age them to look

like they’re 65. What he had the company do is randomly on half of their employees’

retirement forms put a smiling picture of you at age 65 on the form that asks you how

much would you like to put away for retirement, and on the other half of the forms, just put

a standard picture, the smiling picture of you unaltered, to see what the effect was.

What he found was these pictures of a 65-year-old you dramatically increased people’s willingness

to put aside large shares of their current wages into their retirement accounts whereas

pictures of just the smiling them don’t. I think the lesson here is habit of mind that

encourages you to remember that the retired you is you, and that you really care about

that person, can go a long way to helping you overcome problems with savings.

I think that’s probably why you see a lot of financial planners try and systematically

talk with people about their future plans, make very visceral and real what you want

to be doing 10, 20 or 30 years from now. If you can make that very real, then that makes

it a lot easier to sacrifice.

Douglas Goldstein: Can you just tell us what are some other aspects of this research that

we can look forward to?

Keith Chen: Directions that I’m taking this research now, and I actually think they may

be more exciting than some effects that I’m finding on savings - it turns out these language

effects are also very big on other dimensions. We’re looking at the ability to quit smoking.

I actually have some new projects that are looking at safe sex behavior even in a developing

country setting. More broadly though, where this research really is heading right now

is in the direction of just really trying to help tease out those subtle drivers of

our own savings behavior. Hopefully, in the future, once we really understand all of the

ways and all of the subtle influences that impact on people making these decisions, hopefully

we’re going to be able to use that research to help make people better stewards of their

own futures.

Douglas Goldstein: How can people follow your work?

Keith Chen: You can always find my website at Yale. If you just Google “Keith Chen,”

I’m usually the first link, or “Keith Chen economist” or “Keith Chen Yale,”

you can come and check out the work.

Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.

He is a licensed financial professional both in the U.S. and Israel. Securities offered

through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried

by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company.

His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered

at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

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