The Zeigarnik Effect: Unlocking the Power of Unfinished Tasks

Unveiling the Ziegarnik Effect: How Unfinished Tasks Shape Our Financial Decisions

In this episode of the Bryan Foltice Behavioral Finance Podcast, Dr. Bryan Foltice delves into the Ziegarnik effect, a psychological phenomenon that explains why unfinished tasks occupy our minds more than completed ones. The discussion covers the impact of this effect on various aspects of life, including work, personal tasks, and even watching TV shows. Dr. Foltice then bridges the concept to behavioral finance, illustrating how unresolved financial issues like debt can cause stress and anxiety. He offers strategies to mitigate these effects and transform financial goals into powerful motivators. This episode provides valuable insights into using the Ziegarnik effect to enhance financial decision-making and overall well-being.

00:00 Introduction to the Bryan Foltice Behavioral Finance Podcast
01:13 Unpacking the Ziegarnik Effect
02:42 Applying the Ziegarnik Effect in Daily Life
06:05 Behavioral Finance and the Ziegarnik Effect
08:20 Using the Ziegarnik Effect to Achieve Financial Goals
12:14 The Ziegarnik Effect and Investment Behavior
16:32 Conclusion and Final Thoughts

Transcript

0:04

Welcome to the Brian Foltis Behavioral Finance Podcast, where we unravel the mysteries of behavioral finance and unlock the secrets to making smarter, more informed decisions with your money. Now, here's your host, Dr. Brian Foltis. Hello everybody and welcome to the Brian Foltis Behavioral Finance Podcast. My name is Brian Foltis and today we are going to unpack. The Ziegenknecht effect. So going to the world of psychology and bringing it over to our world of behavioral finance. That's what I'm here to do. And that's what we're going to talk about today. Thank you very much for listening. And if you haven't done so, please make sure you subscribe say something nice. Hopefully if you do, that helps expand our programming, gets it in the ears of new listeners and continues to grow. This fascinating topic of behavioral finance. Thank you very much again for listening. What are we talking about when it comes to the Ziegenknecht effect? Anybody who's stayed up, or been up at night? thinking about something that they haven't done or what they need to do the next day, going through that whole process of all these unfinished tasks and thinking about all of the brain power that they are using in order to think about what they need to do or think about what they haven't done. This, friends, is the Ziegenknecht effect. And this effect, named after the Soviet psychologist Bluma Ziegenknecht, there's your trivia question right there, suggests that we tend to remember unfinished tasks better than completed ones. This was originally found when Ziegenknecht observed that waiters in cafes when they had unpaid orders that they could recall exactly what they ordered, how much it was and be able to recite that very quickly. But as soon as the bills were paid, they would ask what did they order? How did that come out to? They had no idea. So we started thinking about how this plays out in different ways of life. So we're going to talk about this from a, holistic standpoint from a life standpoint, and then we are going to bring that into our world of behavioral finance. So when you think about easily anybody who has a job, these clear unfinished work tasks is the Ziegenknecht effect playing out in life. And usually I've noticed. Some of the things that have kept me up and I'm you know We're in the process here of getting better and trying to evolve and improve all these things And one of the things I've noticed is some of the things that have kept me up for long periods of time have been items that literally take less than two minutes to complete or get off of my Others take longer and so for me, I've done two things. First, with these items that take little amount of time to complete, just do it. And this is how I think to myself, just fucking do it, get it off of your plate. And then you don't have to think about it in the middle of the night. Similarly with longer tasks and I'm sitting here at my Desk in my home office today and I've got this paper that's a revise and resubmit that has some feedback on it that I need to incorporate and talk about and the amount of time I'm sitting here contemplating this and thinking about how I'm going to do it is completely outweighed by how much time it's actually going to take me and so but it's not going to take two minutes, which means I need to get into my calendar and just say This afternoon for four hours, you're going to sit here and you're going to get this done. So then you don't have to think about it. You can get it out of your life. Get a publication for it, man. Come on. And there are two compartments here on how you would work on these projects that aren't done. Short term, long term. Either just do it or put it on your calendar to do it. But then I noticed this in other areas too. If you have Netflix. Come on, everybody we're doing this. We're, or, I just watched the fall of Diddy and it's a five pro five episode program and this unfinished business kinda leaves you either wanting to stay up a little bit later than you're willing to do or thinking about it going, Hey. Let's get our stuff done so we can plop down and watch the next episode. And then when it's done, we get to this show hole that we call this, that when you're done with a show, it's completed and you just go, Oh, wow. I have all this space in my. my time schedule and then also in my brain because it's resolved. I'm done. What are we going to do next? And that's the Ziegarnik effect playing out in life. Oh, what else do we have? Unresolved conversations. Okay. Yeah, if you've got another you have a bad conversation with your spouse or your kid and it hangs out there and it's unresolved, then definitely takes up a lot more bandwidth than when it's just takes extra time to work through it. Say, Hey, let's come back to this. Not happy the way we left off here. Let's tie this up so then we can get Ziegenknecht out of our lives and move on in that area. So we, you can see this happening all over the, your life and in your relationships. How does this work in behavioral finance? One of the things that I've observed with students and their anxiety and stress level comes from having debt, and they know that they're accruing debt, and it's just one of the things they're scared to look at it, they're scared to talk about it, but this unresolved issue is causing an overwhelming amount Power in order to work through it. And so this is where we go to mental health services. They're saying 56 percent of students going into mental health services are financially related. And what we're trying to use here is the Ziegenknecht effect in order to just say, okay, First of all, let's support you. But one of the biggest first steps into creating some resolution around this anxiety and stress, so this unresolved anxiety, is to let's go in here and write it down. Let's write down all of your debts, get it on one piece of paper. I've got a monster Spreadsheet that has a lot of entries. So if you have a lot of debt, there's room for you and you're not alone. Let's just get this list written out so then you can actually see it on paper and that provides some resolution mentally to these students. And we instantly see stress reduced once that is just simply written down. And this is where you have. People who are avoiding mental or not mental things, but financial issues. And it really plays out in high stress and high anxiety. And this is where these unpaid debts, unpaid bills start piling up. And it's just this massive unresolved issue that keeps, it's no wonder it's keeping people awake. It's the Ziegenknecht effect playing out in your finances. We've talked about how we would work on our debt and our mental load around that. Let's flip this now and let's talk about our financial goals. So if we have a financial goal that we are working towards it. Now all of a sudden this is unfinished business that we are thinking about. We're thinking about how can we resolve this financial goal or how can we continue to work our way towards this goal. And this is how we can flip the Ziegernick effect to motivate us to keep us going. In order to hit that goal. And so this is where we say, let's get really concrete around our financial goals and make them smart. So instead of saying, Hey, I want to save more next year, that could mean a dollar more, or that can mean a million more let's get specific. So we say smart goals, specific and measurable. So let's quantify this. Let's make them achievable. So it's no pie in the sky. Let's actually be able to try to deliver this. Realistic and time based. So we want to do this within a certain amount of time. So now all of a sudden we have this unresolved issue or unresolved business to work at. And we'll be more likely. To think about it and to work on it and return to it. So now we're flipping it on its head to help us. Same thing. If we have, we're talking about that end goal that we're written out. We also talk about milestones in the meantime, we want to have this big goal at the end, but then I want to try to put in at least three to four milestones in between, and within that, I want. To put some sort of positive reinforcement around those milestones. It doesn't have to be big, but there has to be some sort of reinforcement that you can celebrate and it makes life enjoyable. It continues to gives you that. burst dopamine, a little bit of motivation, that positive reinforcement instead of this constant long term goal that if you do eventually hit it, when we come back, we're going to talk about hedonic adaptation, which essentially says your goalposts are going to move anyway. So enjoy the progress or enjoy the process on this journey by just taking a step back. And if it's a financial win, treat yourself, do something fun. The bigger the milestone. The bigger the celebration can be. You get out of student loans, we tell students, Hey, you get that final thing done, I want you to party, let's celebrate, I want you to let us know, how did you do it, what did you do, so we can join with you to celebrate. But then also, when you're halfway done, I want to ask you, what did you do? How did you celebrate for that? I hope that you have that answer and Mandy and I did the same thing. We keep talking about this getting out of our debt. We had that bit. We had a celebration at the end where we treated ourselves and but also when we were just under 10, 000, we celebrated that when we were I think maybe halfway done. It was a small celebration and wasn't putting a ton because it really wasn't weighing too heavily on us with all the other assets that we had, but still we were still able to celebrate those milestones as we went and I encourage you to do that, whether it's a percentage of your overall goal, 25, 50, 75 percent or certain numbers. I don't care. Just make sure that those milestones are Number three, so we talk about how Zeigarnik effect affects behavioral finance. So our debt and our unpaid bills have a negative effect. And positively though, if we have financial goals, those incompleted goals can help motivate us and keep us focused. Number three, this was an interesting one. It says for loss aversion and investments, Zeigarnik effect, if you have losses, In your portfolio, it'll feel like unfinished business. This is what leads to the disposition effect, which says we hold on to our losing stocks for too long. So prospect theory captures that, where we say we have loss aversion, we feel those losses, and then our diminishing value sensitivity says I've already felt the loss, so I'm just gonna go down with the ship. I don't really care, and this kinda explains some of The behaviors of we found, people hang onto their losses for two, they're losing stocks for too long. And I can attest to that, being a strong Wachovia bank investor through the financial crisis, watching that go down and trying to double down on it on the way, going down with the ship. And then of course they're inevitable bankruptcy and this unfinished business. So when I think about it from a Zeigarnik effect standpoint. Go. Oh, I've occurred the loss. It sucked, but now it's unresolved and it won't be resolved until I get back into the positive area into the positive domain and have made a profit on this. And so I'm just going to hang tight and just ride it out. That's an interesting alternative to our disposition effect where we have those losses. And obviously this we say this is irrational because if it's a loss, then it's in hindsight better to just to get out and to cut your losses and to move on to a different stock take on the tax harvesting or the loss harvesting for the loss and move on with your life before that gets any worse. I've got a whole episode on the disposition effect. If you want to look that up and how we can work around that. But interesting though, that the Ziegenknecht effect is playing out here. In that disposition effect. So like I said, if we're going to use this to our advantage, we're going to break down those bigger goals into financial steps. This keeps the Zeigarnik effect alive and well, in a positive standpoint, this will also make it more. Forefront on the forefront of our minds. If we have that milestone that we're working towards, it creates that urgency, it creates that positive reinforcement as well. If we have the negative, if we are having some mental discomfort, this is where we have that support system for the Money Strong program to sit down. And one of those big steps is just to write down all of our debts, everything on a piece of paper. And we see that it's resolved. Now we can start building a plan. And it's so always interesting just to see that peace of mind that washes over somebody when they just take that little step, it's like that. Two minute, two minute email or tasks that you need to do. It usually doesn't take as long as you think. And if it does, then we'll sit down and carve out a little time, but man, that is always just a really beneficial use of time, especially when it can reduce that Ziegernick effect and all that mental. Energy that you're using towards thinking about it to have that resolved is really impactful and then of course we're going to keep our financial plans open and know that once you hit a goal or hit a milestone, they're going to reset and so we think about um, our new goal and this has to be more Flowing instead of i've reached it. Why am I not happy? Oh, because money isn't everything and so we keep these financial plans open and realize like we are ultimately at the end of the day We're trying to improve our finances In order to give us the life that we want, and this kind of moves into a whole, life purpose, what makes you happy, what is a rich life conversation. But, just when we're using the Ziegernick effect, just realize that, let's just keep These goals open. So then it's constantly on our mind. Once again, we're using that Ziegernik effect to our advantage. Didn't realize I was going to be able to talk for this long around the Ziegernik effect, but there we go. So if you made it this far, thank you very much. And if you have any comments, we'd love to hear from you. You can always reach me at brianfoltis. com or on Instagram. And would love if you shared it, liked it, subscribed, so you can never miss another episode. Thank you very much everybody. I wish you all the very best. And I hope you have a wonderful day, and we'll see you on the next. Thank you for tuning in to another episode of the Brian Foltis Behavioral Finance Podcast. We hope you found our exploration into the fascinating world of human behavior and finance, both enlightening and thought provoking. Be sure to subscribe for future episodes and until next time, stay curious and financially savvy.