Wry & Dry

The Marshmallow Test

W&D wonders how he would have acted.  If, when aged about four and a half, he was offered a choice.

  • One marshmallow now; or
  • Two marshmallows in 15 minutes

The object of the real exercise, a Stanford experiment by psychologist Walter Mischel some years ago, was to test for delayed gratification.

Work with W&D on this. 

Essentially, the children were given the choice.  Each was presented with a marshmallow on a plate.  And was offered one marshmallow to eat now, but if he/she waited 15 minutes without giving in to temptation, he/she would be rewarded with a second marshmallow.


The result?

One third immediately ate the first marshmallow.  One third tried to wait and failed.  And one third successfully waited and thus also had the second marshmallow.

Those results were not really surprising.  What was surprising was the results of assessments years later, in a series of follow-up studies.  

The results of the follow-up tests showed that those children who delayed their gratification grew up to have higher self-esteem, did better academically; and were more resilient, had lower levels of substance abuse, lower likelihood of obesity and better social skills than those who did not*.

W&D's point is, of course, all about self-discipline.  There are two aspects to this.

Firstly, the postponement of current consumption in return for a bigger future reward is a sound strategy.  This is a core tenet of investing for retirement (or anything else for that matter).  But the real story is how different in later life were those children who chose delayed gratification.

(W&D could bounce up to the soap box and draw conclusions about the current Me Generation and how their desire for instant gratification will affect them in the future.  But won't.)

Secondly, and less obviously, are the merits of resisting the desire to act now, in the face of a tempting item.  Better to be patient.

All of this is a W&D long way to remind readers that just because you can do something, it doesn't mean you should do it.  There are times to be patient and resist a desire to act.

In today's investment climate of a horribly overvalued market (with the latest profit forecasts the ASX200 is trading on a P/E of over 20!), some investors feel as though they need to do something in a rising market.

Err, like, what? Buy an overpriced security, where the opportunity for upside is limited but the scope for downside is larger.  That is a decision with an asymmetrical payoff.  The wrong way.

W&D's tip?  Don't eat the first marshmallow.

*Readers should note that W&D has simplified the explanation.  There is a great deal more to this research and the findings.  And also the fact than an absence of self-discipline at a young age is not a sentence for a bad life ahead.