The Hidden Forces That Shape Our Decisions
A Simple Checklist to Improve Your Decisions
As an Economic Unit in a Capitalist Economy, you probably spend most of your time scurrying about Maximizing your Utility. Right?
You buy things which give you pleasure, or sell them when the cash you’d receive is greater than the pleasure of keeping them. You choose the job that offers the best tradeoff between things like pay, stress, and time consumed, in an industry you chose based on the same criteria.
Even your leisure time is rationally allocated, optimized to get the most happiness from a finite amount of time, with cost factored in and weighed against the amount of extra work required to pay for leisure spending.
Although you’re probably having a good laugh at my deliberately optimistic oversimplification, this is the basis of free-market capitalism itself, and to a certain extent it works. In fact, most of the good aspects of our great leaps forward since the industrial revolution are byproducts of this free enterprise and trade. Neat inventions in food production, medicine, clothing, and everything else that brings us long lives and comfort, are side effects of the incredible ingenuity unleashed by setting smart and hard-working people free to run.
If that were the whole story, we could just shut down the government and sign an Ayn Rand novel into law and be done with it. But anyone with a deeper understanding of the market system is probably waiting to point out the other side of it:
Most of the bad aspects of modern society are brought about by the failure of humans to properly maximize their utility.
In other words, we make some incredibly stupid decisions. And the byproduct is pain, untimely death, and inefficiency.
The standard opinion on this inefficiency is that it’s just a few bad apples in an otherwise good system. Most of us do well at running our lives, don’t we? We know what we want, and our system is good at delivering it to us. But I’d say there is more to the story.
Most Americans, for example, are deep in unnecessary debt, overweight and poorly nourished, inactive and stressed out, and self-sentenced to a mandatory career of unsatisfying work just to stay afloat. We constantly buy things we can’t afford and don’t need, and the majority of the trading we do does not increase our net happiness.
We’re so easily manipulated that advertisers and politicians can pull our emotional strings with ridiculous ease just by replaying the same transparent ruses day after day, decade after decade.
And all of this is done with virtually no awareness of how we are affecting our own ecosystem – the tiny veneer of air and plants that is the only thing between us and the lifeless vacuum of space. In fact, it would be difficult to imagine a less efficient way to maximize “Utility” than what the modern consumer does.
Given all this freedom, why do we screw things up so royally? Is there a way to maintain the power of the market while getting around the general idiocy of our own species?
Fortunately, the answer is built right into you, in the form of the genetic program you received at birth. The reason we suck at running our own lives is that we are evolved and programmed for a completely different set of surroundings. But this handicap can be overcome: by learning about our own weaknesses, we can compensate for them and lead much more productive, powerful and happy lives.
This is where the title of this article comes in. I recently read the book Predictably Irrational by Dan Ariely at the recommendation of some readers. It’s not often that I find a book that crystallizes so many interesting concepts in one swipe, but this book does it. Everything the author proposes just makes so much sense. But as an MIT behavioral economist with mutiple books and over 75 published papers on his resume, these are not just the blowhard opinions of a financial blogger – the man actually does his own research and has an uncanny way of sharing it with the world with perfect accessibility.