Just in time, year after year

Why I keep procrastinating about my tax return

The British are known for the occasional eccentricity. One of these quirks is their tax year: for reasons that escape me, it runs from 6 April to 5 April the next year. Annual income tax returns, if you submit them online, are due at midnight on 31 January. In principle, all information to complete it should be available some time in May for most people. Yet only just over half of the 11 million tax payers that must submit the return, do so before the end of the calendar year, and of the remaining 5 million nearly 20% failed to meet the final deadline last year.

Marshmallows may help explain this phenomenon. Walter Mischel, a psychologist at Stanford University in the 1960s, conducted a series of experiments on 4- and 5-year old children to gauge their self-control, to find out to what extent it might predict how they fared later in life. In one variant a child was brought into a room, and asked to sit down at a table on which there was a single marshmallow. The experimenter then told the child he was going to leave the room for 15 minutes, and the child could either eat the marshmallow at any time before he returned or, if it was left untouched, there would be a reward of a second marshmallow.

marshmallowtrumpFew of the children managed to leave the sweet alone for the full duration, despite the prospect of double the amount of marshmallow after a mere 15 minutes. It’s easy to snigger at how these small children struggle to delay gratification and give in to temptation, but we adults shouldn’t really laugh too hard.

A popular case study in behavioural economics is that of the failure of many people to save enough for their retirement. They succumb to the temptation of spending small amounts of money now, rather than investing it into a pension fund that will produce a much bigger reward later: a process that is very similar to eating the marshmallow now instead of waiting and receiving two later.

My procrastination is the time equivalent to marshmallows and pension savings. Of course I could spend a couple of hours on a Saturday afternoon, now and then throughout the year, keeping my paperwork up to date so that when the tax year ends, all I need to do is one final check. But I don’t – there are far better things to be done, and there’s plenty of time left, so I put it off.  Bizarrely, even the knowledge that I would receive a sizeable tax refund has not proved enough of an incentive to make me submit the return in May (and get the refund before the summer holidays) rather than in January (and get the money nine months later).

Commitment ahead

Is there a way I could save myself the stress of finding not only enough time in the few remaining weekends before the deadline, but also of finding all the documents I need to work out what I am owed or owing?

Maybe I could try to rely on a pre-commitment device. Behavioural economists Richard Thaler and Shlomo Benartzi developed the Save More Tomorrow approach, in which employees commit in advance to allocating a proportion of future wage increases to their retirement plan. This kills two birds with one stone. First, it decouples the decision from the implementation, which reduces the cognitive load (“Perhaps I should first buy this new phone/a new pair of shoes and start saving next month”) and makes it a fait accompli. It also avoids the loss aversion that might hold people back: their take-home pay will still go up when they get a salary rise, only by less than it otherwise would have been.

Dan Ariely has investigated (together with Klaus Wertenbroch) how such a pre-commitment approach might affect his students’ tendency to procrastinate with the papers they need to submit during a semester. In the video below he explains how he offers them the choice between a single, end-of-term deadline, and setting their own intermediate deadlines, with a certain grade penalty if they are late.

One might argue that the rational thing to do for a student is to go for the standard option: this leaves the maximum amount of freedom to submit when you want, with no risk of a penalty in case some unexpected event prevents you from submitting according to a self-imposed, earlier deadline. And yet, as he describes in Predictably Irrational, students with well-paced intermediate deadlines achieve higher grades.

So maybe I can penalize myself for not keeping on top of my income tax paperwork – no beer money for a month if I failed to organize my receipts and invoices in the previous month? If I’m not trusting myself, I could rely on an external referee, and hand them my beer money for a whole year, only to get it back if they have verified I’ve completed my monthly task. There is even an internet platform, stickK, which makes it easy to set up the contract. One of their suggestions is to forfeit the money to anti-charities: if you fail to meet your goal, your stake is donated to a cause that you despise, just to motivate you that little bit more.

Overlooked

And yet… there is one thing that is overlooked in all of this. The unspoken assumption has been that having to race against the calendar, if not the clock, to fill in all the boxes on the tax return, to have to rummage through stacks of documents, to trail through emails and bank statements, to struggle with half-completed spreadsheets – that all this is a bad thing. And perhaps it is: spreading the volume of work out over a longer period of time would most likely take away most of the last-minute stress.

But what about the incredible feeling of relief when I finally hit the Submit button, with a few days to spare? Would I feel anything like it if I was ready many months before the deadline, and all I needed to do was simply copy some numbers from a well-maintained spreadsheet?

I doubt it. The sense of liberation and satisfaction I experience when I can finally draw a line under the bureaucratic chore is well worth the hassle, the agony and the panic.

It is, all in all, a good trade-off for me, and that is why am sticking to my routine of procrastinating for eight and a half months, and two weeks of mad rush, year after year.

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies and tagged , , , . Bookmark the permalink.

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