Decision fatigue leaves rational, smart and careful employees vulnerable to sales and marketing strategies and also explains why some employees get trapped in a cycle of poverty as those in tighter financial spots tend to make worse decisions.
Have you ever returned home from an innocent trip to Target to find a random selection of bath towels in your bags? How did you make such terrible decisions about your new linens? Decision fatigue may be the culprit, and, importantly, it impacts employees who may be living through major changes in their lives.
Decision fatigue refers to the phenomenon where the quality of decisions made decreases with each additional choice to be made. Behavioral science experts note decision fatigue is one of the elements that lead to irrational decision making. Attorneys will tell you that they often jockey to be earlier on a court’s calendar for the day than later to help avoid the impact of decision fatigue on busy judges.
Major decision makers, like CEOs and heads of state, such as former president Barrack Obama, are deliberate in their planning to avoid decision fatigue, down to Obama’s habit of wearing nearly identical suits and Facebook CEO Mark Zuckerberg’s trademark white shirt and gray hoodie.
Employees who may be in the eye of a personal storm, like divorce, death of a loved one, or other upheaval, may not recognize that their decision making is decreasing in effectiveness. And importantly, those life events often involve changes to retirement accounts.
The key to decision fatigue involves literal fatigue. When comparing outcomes and choosing a course of action, employees must make trade-offs. That refers to where the options involved in a choice have both positive and negative elements and an employee must weigh those elements. The weighing of the options requires mental energy and an employee who lacks energy due to grief or other elements involved in a life change, will lack the energy needed to properly weigh the trade-offs. Some researchers call this becoming a cognitive miser – the employee doles out mental energy like Scrooge with gifts before the ghosts visit him. Thus, as more and more decisions get made, the employee may end up in the mental equivalent of enny-meany-miny-moe. In other words, just gravitating to the option with the least amount of thought.
Also importantly, decision fatigue leaves rational, smart and careful employees vulnerable to sales and marketing strategies. Decision fatigue in the financial area also explains why some employees get trapped in a cycle of poverty. With a constant weighing of options, due to lack of financial flexibility, those in tighter financial spots tend to make worse decisions. Decision fatigue also leads to more impulse purchases, which usually impacts savings and retirement readiness the most.
The options available to the fatigued employee may be either a poor decision, e.g., one with less regard for long term impact, or no decision at all, e.g., just do what the marketers say. When that comes to retirement readiness, an employee who is separating from a spouse may fail to enroll in the company’s 401(k) even though earlier enrollment could allow for longer matching options or more compound interest.
But there is a silver lining. For employees who believe that they must resist certain options, like candy at a supermarket or a new outfit instead of saving more, they may believe that they are exercising willpower to make those decisions. And, how they view willpower may be the key to helping employees under the most stress make better decisions.
A recent Stanford University study showed that decision fatigue had a higher impact on people who believed that willpower was a limited resource. In fact, willpower is not a limited resource and those who believe it won’t “run out” can continue to make trade-offs effectively longer than those who think it will run out.
If employees can understand when and how they become fatigued about making decisions, they can then arrange for better times and schedules for making decisions about retirement readiness. Plan Sponsors can help employees going through major life changes by simply educating them about decision fatigue. That kind of education, sometimes referred to as psycho-education (where someone is informed about the brain’s processes) can help increase awareness and lead to better results.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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