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Examples of habit stacking and temptation building

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Final answer:

Habit stacking involves combining new habits with existing ones to form stronger routines, while temptation building uses precommitment strategies to avert impulsive actions. Behavioral economists use nudges, like automatic enrollment in retirement plans, to foster more rational decisions and better financial outcomes.

Step-by-step explanation:

Traditional economists believe that human beings have complete self-control. However, behavioral patterns reveal otherwise. For instance, habit stacking is a strategy where individuals pair a new habit with a current habit to establish a more robust routine, whereas temptation building, also known as precommitment, involves structuring your environment to prevent future impulsive behavior, such as buying smaller quantities of cigarettes or using locks on refrigerators.

Behavioral economists use nudges to encourage more rational behavior. Such nudges include automatic enrollment in retirement savings plans, where employees must opt out rather than opt in, significantly increasing participation rates. Similar strategies are implemented in various aspects of life to minimize the impact of potential temptations and ensure better long-term outcomes. Mental accounting is another example which involves categorizing money and spending in different mental 'accounts' to improve savings and control spending.

The concept of habit stacking and temptation building is further exemplified in the tendency of individuals to create systems and rules that act as checks on our less rational impulses, leveraging psychological insights to improve decision-making and financial planning.

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