Wait. Before. You. Charge. That, Says Author


In a world that says go-go-go, Frank Partnoy says wait-wait-wait.

As a lifelong procrastinator, Partnoy encountered disapproving glances from his go-go bosses and co-workers en route to becoming a Morgan Stanley investment banker, corporate lawyer, founding director of the Center for Corporate and Securities Law at the University of San Diego and one of the world's leading experts on market regulation.

And it bugged him.

So much so that he decided to spend three years of his life writing "Wait: The Art and Science of Delay," a lively, reader-friendly survey of scientific research into the pros and cons of rapid decision-making drawn from such diverse fields as sports, day trading, comedy and film.

To his vindication, Partnoy found that those who allow a little yellow caution light into this green-light world fare better in almost every aspect of life.

What does all of this have to do with Anthony Weiner, "American Idol" and the likelihood that your dog would run up a humongous credit card bill?

Why wait? Read on.

CreditCards.com: What prompted you to write "Wait?"

Frank Partnoy: Part of it came out of the financial crisis and how individuals and institutions and regulators all made really awful snap decisions. In fact, Lehman Brothers had a course for their top four dozen executives that was really a course advocating snap decision making. But it's also been a topic of interest to me as a procrastinator who puts off all kinds of decisions and has been made to feel bad about it. I wanted to spend a few years trying to understand the difference between good and bad procrastination.

CreditCards.com: Your research suggests that far from procrastinators, we humans are hardwired to react quickly.

Partnoy: We are, definitely. It's part of our ancestral roots in the savannah 100,000 years ago when fight or flight was the right reaction. The problem is, we're now coupling this snap reaction hardwiring with technology and the crush of email and social media and 24-hour news, and they don't go well together.

CreditCards.com: As in, friends don't let friends drink and tweet?

Partnoy: Exactly. Anthony Weiner, the New York congressman who tweeted the photo of himself in his underpants and had to resign, is probably the most prominent example of that, but there are lots of not-very-thoughtful tweets that people send out and wish they could take back. Perhaps more importantly, there are lots of mistakes that even experts at major news organizations make. The tweets that went out right away in response to the Supreme Court's health care decision were inaccurate and CNN and Fox News both snap-reacted to that decision and got it wrong.

CreditCards.com: Snap judgments aren't always the best judgments?

Partnoy: Research shows that although we have the ability to glean information about someone very quickly, we do better when we take a little bit more time. Instead of snap-reacting to someone, if we took a few minutes or an hour, we would make a much better judgment about them, if only because you have much more information with which to make a judgment.

CreditCards.com: Credit cards became wildly popular initially because they promised to speed up the buying process. What's wrong with that?

Partnoy: There is something abstract about using a credit card that changes the nature of the payment. If you go into a coffee shop and spend five bucks on a cup of coffee, you don't experience the visceral reaction of pulling out a $5 bill and having it disappear; you just have an intangible electronic transaction where who knows what just happened.

CreditCards.com: Research has shown that before we charge that $5 latte, each of us actually conducts an almost subconscious calculation of its value based on our personal "discount rate." How does discounting work?

Partnoy: A discount rate is the rate we use to discount the value of a future payment or cash flow. So if our discount rate is say 10%, we would be indifferent about receiving or paying $100 today and $110 in a year. The problem with our discount rate is, our hardwiring leads us to have very, very high short-term discount rates. For example, if you ask someone if they'd rather have $50 today or $100 in a month, many people will take the $50 today. That's a very high short-term discount rate.

Now, if you take that same one-month span and ask someone if they'd rather have $50 in 12 months or $100 in 13 months, most people would rather wait the extra month for the $100. So we have a kind of declining discount rate where in the very short term it's really high and in the longer term it will be lower, though still not as low as we'd like.

CreditCards.com: So we buy now and pay later. What's wrong with wanting what we want when we want it?

Partnoy: Well, a high discount rate leads us to be more impatient. The people who have high short-term discount rates are much more likely to be carrying lots of credit card debt. They're also much more likely to have other kinds of problems. Studies show they are more likely to be obese, have drug, alcohol or gambling problems, more likely to have problems in their marriage and at work and more likely to have jobs that pay less money. There are all kinds of problems that correlate with having a high discount rate.

CreditCards.com: All because they have trouble thinking ahead?

Partnoy: Yes. It absolutely has to do with thinking about the future. Our ability to think about the future really is what distinguishes humans from animals. The dog with a bone on its snout on my cover can think about the future for a few minutes and delay gratification for a while. but dogs can't think about the future in any kind of long-term way. Dogs would run up really big credit card bills because they would have no ability to understand what would be happening in a month, but we can. The more we can delay gratification and think about the future, in some ways the more human we are; the better we are able to get past our hardwired animal instincts.

CreditCards.com: Do "revolving" credit card accounts further complicate our ability to delay gratification and make smarter financial choices?

Partnoy: Yes, there's something about the indeterminate nature of a rolling payment deadline that makes it harder for us; we don't "unpack" it into a series of decisions or deadlines. It's not really a fixed obligation; it's something that you can put off so it's kind of unclear what the maturity date is of the debt. That leads people to serially make decisions each month that might not be in their long-term interest.

CreditCards.com: So should impulse shoppers avoid using credit cards altogether?

Partnoy: Probably, because they'll get trapped into having to pay very high rates that they won't be able to afford.

CreditCards.com: What's the alternative for them? Cash?

Partnoy: Many people, kind of like Ulysses, strap themselves to their debit cards instead so that they won't incur debt after a while. Certainly people who have come out of personal bankruptcy who aren't able to get access to credit will kind of strap themselves to the debit card mast to try to govern themselves. I think that can be a very effective strategy for people who don't trust themselves. If you're an alcoholic, you don't want to keep beer in the refrigerator. If you have a gambling problem, you don't want to take $10,000 in cash to Las Vegas. And if you have a borrowing problem, you don't want a credit card.

CreditCards.com: How did writing "Wait" change your own behavior?

Partnoy: I am much more deliberative now. I approach email very differently. If I get an email, I'll often respond right away and say I need a week to think about this, then I'll cut and paste the content of the email into my calendar for a week from today. I've found that I make better decisions and have better reactions that way. In the same way that a professional tennis player who hits the ball at the very, very last second can free up a few extra milliseconds to process information about the trajectory and speed of the ball, I've found that it's really useful for me to get as much extra time as I can.

CreditCards.com: What do you hope readers take away from "Wait?"

Partnoy: When it doubt, wait. Take a breath, a pause. Use our human ability to think about the future. Be conscious and cognizant of when our hardwiring might be taking us where we might not want to go. If I have one word of advice for future generations who will have our hardwiring but be exposed to an unfathomably fast world, that's the one word of advice I would give: Wait.