Understanding the Role of Self-Control in Behavioural Economics

Behavioural economics is a field that combines psychology and economics to understand how individuals make decisions. It challenges the traditional economic assumption that individuals are rational and always act in their best interest. Instead, it recognizes that human behaviour is influenced by various factors, including emotions, biases, and social norms.

The Concept of Self-Control

Self-control is the ability to resist immediate gratification in pursuit of long-term goals. It involves making choices that align with our long-term interests, even if it means sacrificing short-term pleasure.

For instance, choosing to save money for retirement instead of splurging on a luxurious vacation. In traditional economics, individuals are assumed to have unlimited self-control. However, behavioural economics recognizes that self-control is a limited resource that can be depleted. This means that individuals may struggle to make rational decisions when their self-control is low.

The Role of Self-Control in Decision Making

Behavioural economics views self-control as a crucial factor in decision making. It explains why individuals often make choices that are not in their best interest, such as overspending, overeating, or procrastinating. One reason for this is the presence of temptations.

Temptations are immediate rewards that can distract individuals from their long-term goals. For instance, the temptation to buy a new phone instead of saving for a down payment on a house. In such situations, individuals with low self-control may give in to temptations and make impulsive decisions. Another factor that affects self-control is present bias. This refers to the tendency to prioritize immediate rewards over future benefits.

For instance, choosing to watch TV instead of studying for an exam that will take place in a few weeks. Present bias can lead to poor decision making, as individuals may not consider the long-term consequences of their actions. Moreover, self-control failures can also occur due to mental accounting. This is the tendency to treat money differently based on its source or intended use. For instance, individuals may be more likely to spend money won in a lottery than money earned through hard work.

Mental accounting can lead to irrational decisions, as individuals may not consider the overall impact on their finances.

The Impact of Self-Control on Economic Outcomes

Behavioural economics recognizes that self-control plays a significant role in economic outcomes. Individuals with high self-control are more likely to make rational decisions that align with their long-term goals. This can lead to better financial outcomes, such as higher savings, lower debt, and higher investments. On the other hand, individuals with low self-control may struggle to make rational decisions, leading to poor financial outcomes. For instance, they may have high levels of debt, low savings, and little investment.

This can have a significant impact on their overall well-being and quality of life.

The Role of Nudges in Improving Self-Control

Nudges are interventions that aim to influence behaviour without restricting choices or providing incentives. They are based on the principles of behavioural economics and can be used to improve self-control. One way nudges can improve self-control is by reducing temptations. For instance, placing healthy snacks at eye level in a cafeteria can nudge individuals towards making healthier food choices. Similarly, setting up automatic savings plans can reduce the temptation to spend money impulsively. Nudges can also help individuals overcome present bias by making future benefits more salient.

For instance, displaying the amount of money saved for retirement on a monthly statement can remind individuals of their long-term goals and encourage them to continue saving. Moreover, nudges can also address self-control failures by simplifying decision making. For instance, offering fewer investment options can make it easier for individuals to make rational investment decisions.


In conclusion, behavioural economics recognizes that self-control is a limited resource that can affect decision making. It explains why individuals may struggle to make rational choices and how this can impact economic outcomes. By understanding the role of self-control, we can use nudges to improve decision making and promote better financial outcomes.