Overconfident Consumers

This study by Bain and Company says that we shouldn't buy gym memberships, or those retail store discount cards.

You belong to a health club but visit it only once or twice a month. Your wallet is filled with gift cards to Barnes & Noble and the Gap that you promise you will use soon. You exhausted your prepaid cellphone minutes last month and faced hefty charges when you continued to make calls, but you are sure it will not happen again.

You are, in the words of a new research study, an overconfident consumer.

Such irrational confidence in one's own behavior is hardly new. The flight of Icarus, the voyage of the Titanic and the bull market of the 1920's all attest to the timelessness of human hubris.

But the day-to-day economic consequences of this hubris have rarely been as large as they are now. As the economy has become more sophisticated and simple cash is involved in fewer and fewer transactions, people must plan ahead far more than they once did. They need to choose a health care plan and to estimate whether they are spending more money on their credit cards than they are earning in salary. Among a myriad of payment plans for long-distance phone service, Internet access and gym membership, they must decide which ones will cost least.

They — we, that is — rarely succeed, according to recent research by economists from Stanford to Harvard. The loss of income from these mistakes is quickly becoming significant for many households.Economists describe this as ''time-inconsistent behavior.'' When the benefits of an action are far in the future and the costs are immediate, people do not give the benefits much weight. Tomorrow's buff body loses out to the dread of today's workout, and a reduced risk of cancer is obscured by the pleasure of a cigarette. When the costs are in the future and the benefits immediate, as when the purchase of a new BlackBerry requires only the flick of a credit card, the benefits eclipse the costs.

I've often wondered if companies will arise in the future that make money by managing the things you buy so that you get the best value. Say the average family overpays for things by $500 per year. It would make sense for them to pay $20 a month to a service that kept track of all this stuff and pointed them to the subscriptions, products, and memberships that had the most benefit for the least cost to fit that family's needs.