BOOK REVIEW: Atomic Habits - Why all your small decisions do matter

This article was first published in the Quarter 3 2021 edition of Consider this. Click here to download the complete edition.

At Prudential, we aim to build up small, positive returns continually over time, while also avoiding large losses, in order to deliver strong outperformance to our clients. This consistent effort has paid off, resulting in our equity funds achieving top-quartile returns over many different periods, for example. This same approach of aggregating the positive and limiting the negative can be applied in daily life, too, in order to stay happy and healthy. In the book “Atomic Habits”, James Clear suggests that real-life change also comes from the compound effect of hundreds of small decisions. He calls them Atomic Habits.

What makes this book different is that rather than focusing on the individual’s measure of willpower, the author argues that breaking bad habits and building good ones result from having the right systems in place. He explains that motivation is often overrated, and that the environments we create for ourselves often matter more when trying to create good habits. “Disciplined” people who appear to have a lot of self-control are often just those who have structured their environment right so that they don’t need heroic willpower to overcome tempting situations. It is therefore best to be the designer of your own world and not just the consumer of it. 

Instead of focusing on what we want to achieve, the book calls for a focus on who we want to become. Incentives start a habit; identity sustains a habit. The book teaches us to become the best versions of ourselves.

The author describes four laws of behavioral change which can help us build better habits. He also provides practical, real-life examples of how better habits can be instilled. Clear calls on examples such as troops returning from Vietnam with heroin addictions, as well as well-known individuals such as the comedian Steve Martin in his quest for better habits.

In making sense of habits, the book also delves into what motivates human behavior. The human brain associates specific habits with specific contexts. Habits thrive under predictable circumstances. We also tend to adopt habits that are approved by our society because humans have a strong need to fit in and belong to the tribe. The costs of good habits are in the present, while the costs of bad habits are in the future. It’s all about delayed versus instant gratification, which relates to our ancient brain.

Clear professes that many habits occur at a decisive moment that then sets you up for a productive day or an unproductive one. He refers to gateway habits – small steps that influence the big steps thereafter. You can only run a marathon if you start with putting on your running shoes, for example. 

One can cut out bad habits through increasing the odds that you will do the right thing in future by making the bad habit difficult in the present. An example of this is when gamblers voluntarily add themselves to the banned list at a casino to prevent future gambling sprees. Good habits should be made easy (putting your running clothes out the night before) and bad habits difficult. This is where technology comes in as a useful tool, through for instance limiting your own social media browsing with a website blocker, or setting up a debit order to enforce your saving habit.

The author then focuses on habit tracking, which forces you not to break the chain and to make it obvious what your progress is, such as setting up a reward for every time you pass up on a cappuccino. Humans like seeing their own visible progress.

In the final section of the book, Clear focuses on how habits relate to genes and personality types, since habits are easier to form if they align with your personality and skills. The Goldilocks Rule and how that relates to habits is also introduced (i.e. working on challenges of just manageable difficulty). The difference between great athletes and everyone else often just boils down to who can handle the boredom of training every day, doing the same drills over and over. Habit formation is therefore not about how long it takes to establish, but about how many repetitions it takes. For Clear, habits are the backbone of any pursuit of excellence. 

The book concludes that small, positive habits don’t simply add up – they compound. The words of the famous investor Charlie Munger are therefore very apt: “The first rule of compounding: never interrupt it unnecessarily”.