In some ways, it’s like we never grow up from being little kids at Christmas. The anticipation we experienced was amazing, wasn’t it? Fantasizing and wondering about the gifts we were going to get. Then we opened our presents. And three days later we’re bored with our new toys. Now here it is, well into adulthood, and we still think things will make us happy that really don’t.

Why don’t we ever learn?

Why are we so bad at making predictions? In particular, why do we seem so bad at predicting what’s going to make us happy? And why do we keep making decisions based on predictions, when we know our predictions don’t work? Don’t we know ourselves pretty well? I mean, we live with ourselves. We’ve lived with ourselves for a good long time now. So what’s going on?

There are at least three big reasons that we are not very good at predicting our own happiness.

Number One: We underestimate the trade-offs.

We don’t think about what we are going to have to give up in order to get what we think we want. Another way of saying this is that we forget that there are always trade-offs.

It must be nice to own a gym. People consistently buy gym memberships and never use them. Only about 18% of people who buy a membership use it consistently, and only half even use their membership more often than one out of every four days. Gym owners know and expect all this: most are budgeted so that they can only stay open if they have at least ten times as many members as people using the gym at any given time. Why do people buy so many memberships that they don’t use?

If you're going to go to the gym, you have to give something up.
I bought the membership. You mean I have to use it?

The biggest problem is that we don’t think of the fact that we have to give up something in order to use the gym. Specifically, we have to give up time and energy. We think of buying a gym membership, and we think that we’ll just have our life as it is now but with a membership added on top. Nope. Something has to disappear from our lives too, in order for a new thing–going to the gym–to be added.

And maybe it seems like what we would be giving up isn’t important. It’s just time spent “doing nothing.” But you are doing something during that time. Maybe you’re releasing stress, or daydreaming about the future (which is where a lot of great ideas come from), or spending time with your friends. Whatever you’re doing, it’s not nothing. And if it wasn’t benefiting you in some way, you wouldn’t do it. That means giving it up hurts.

Nothing is really “free”. This website is free in the sense that you don’t have to pay money specifically to use it. But the real cost of the website is that whatever time you spend here is time that could have been spent some other way. The true cost of any action is whatever else you could have done with your time. To be very specific, the true cost of anything is the next best opportunity that you gave up.

There’s no such thing as a free lunch.

Similarly, the true cost of any purchase is whatever else the money could have been spent on or saved for.

So here is the first way to do a better job of predicting happiness. Don’t let yourself think of spending money as just spending a certain amount of dollars. Think of it as letting go of whatever else you could have done with the money. Even better, think of spending money as spending the time you spent to make the money. If you make 25 dollars an hour, and you are thinking of spending 250 dollars, think that you are spending ten hours of your life. Those purchases might start to look different from that perspective.

Whenever we try to predict our own happiness we consistently overestimate the positive effect of changes and underestimate the negative changes. Let’s talk about our 10,000 year old brain again. This brain isn’t set up for happiness, love, or success. It’s set up for survival. As a result, when we actually experience things, negative experiences are more powerful than positive ones. Psychologists estimate, for instance, that in relationships it takes five positive experiences to balance out one negative experience.

People consistently underestimate how important this balance is. When people are asked what makes them most unhappy, the top two answers are consistently doing housework, and commuting to work. Research now suggests that if you make about $60,000 per year, cutting your commute by one hour is the happiness equivalent of a $40,000 raise! (Again, are you still sure you want to live in the most expensive house you can afford?)

The issue is that most people will choose a longer commute for a much smaller raise, even if they don’t really need the raise. We do this all the time. We do this with everything. We consistently take for granted the things in our lives that reduce unhappiness (like not having financial stress) and overestimate the benefits of, say, nicer cars or expensive accessories. So again, especially when considering big purchases that will affect your daily life, think about what the downsides will be along with the upsides. Because you will experience those downsides at about five times the intensity that you will experience the upsides!

Doug and donut.
Never take the small things for granted!

Number Two: We change.

The second big reason we don’t predict our own happiness well is that the person who makes the prediction is not the person who will experience the results. This is partly because we change over time, and partly because we are in a completely different state of mind when making the prediction than we will be in when experiencing the reality.

When we try to predict, we live in a world of comparisons. But real life is just the experience of right here and right now.

Here is a trivial example. Let’s say you’re trying to figure out if going out dancing is going to make you happy. When you are in the predicting state, you are comparing dancing to all the other things you might be doing. And you are seeing how it sizes up. But that has nothing to do with what you are going to experience if you actually go. If you go, the moment you approach the dance hall you will hear the music, deal with the bouncers, pay at the door, be struck by the lights, notice the floor is sticky because someone spilled their drink, and so on. You will be dealing with an almost infinite number of detailed experiences, and they will overwhelm any thoughts of what else you could be doing with your time.

That’s a trivial example, but we can get into real trouble when we try to decide whether to buy a house or car based on mistaken predictions, to say nothing of all the small expenditures we make that don’t work out.

Here’s a not-so-trivial example: buying a house. When I was looking for a house, at first I did what most people probably do. I compared and contrasted all sorts of houses. (Oh look! This house has a hot tub!) And of course, I made the mistake of comparing them all to what was my current living situation at that point.

The truth is, though, that once I moved in I forgot about all those other places, and about the place I used to live. Upon moving in I was immediately preoccupied with putting in flooring in the garage to turn it into a livable space, enjoying the view from my windows, cleaning everything, figuring out why the washing machine was so strange, and trying to prevent the ants I saw crawling around outside from crawling around inside. I had no time for comparisons. I was just experiencing.

And the experiences are either good enough or not. That’s how real life is. Fortunately I had remembered that truth, so when I got serious about buying I stopped comparing. Instead, I just listed off each thing that really mattered. The price, the location, how many bedrooms the house had, what kind of “feel” it needed to have. Then I asked whether each house I looked at met the criteria.

Using that system, only one single house was acceptable. That’s the one I bought. And I am overjoyed with my purchase. The point to remember here is that even I made the same mistakes everyone makes trying to predict my own happiness–at first. And these mistakes are like that. They are similar to those optical illusions that you never stop seeing even after it’s been proven to you that they are an illusion. We can’t stop our minds from making the mistake, but we can recognize that it’s happening and change our behavior for the better.

And when making those big decisions, remember, you will be a different person in the future, too. We all change over time.

Number Three: We just don’t predict well.

The final big reason we predict our own happiness poorly is that we just aren’t good at predicting things, period. In the book, “Expert Political Judgment: How Good is it, and How Can We Know?”, Philip Tetlock studied hundreds of people who made their living offering advice on political and economic trends. He asked them to make predictions about world affairs and he tracked their success rate. These experts did so poorly that you would have been better off making predictions by just flipping a coin!

What was really interesting was that people actually did even worse in their area of expertise than they did on general questions! How is this possible? It seems to have happened because these experts had pet theories that they loved. When they encountered evidence and facts that supported their theories, they accepted it. When they found contradictory evidence, they minimized, rejected or dismissed it. So their confidence increased, but not their knowledge (and certainly not their wisdom.) The more “expertise” they had, the more they simply ignored facts that didn’t fit their theories.

Are we that kind of “expert” when we try to understand our own brains? Maybe. Are we all suffering from the Dunning Kruger effect when we try to understand ourselves? Maybe. If so, there might be a simple way to make much better predictions about our own happiness, and save a ton of money in the process.

Instead of making predictions, talk to people with real life experience.

Here is a fantastic secret to success I learned from Tony Robbins. If you want to succeed at something, find five people who have succeeded at the same thing. Then, listen to them. Feel free to ask them for advice, but it’s not really advice you are looking for. What you want to know is their story, and in particular, you want to learn the story of their day-to-day life. What you really want to figure out is this: what do they do, every day? Find whatever it is that those five people all do, find out what they all have in common, and then do that. Every day. Start with the simplest things they have in common and then move to the most complex.

What do successful people do, every day?

A similar type of strategy will work with anything, especially figuring out how to spend (or not spend) money. Instead of trying to make predictions, find out what other people have experienced! You know how similar other people are to you, at least in the areas where you are considering spending money. Their real-life, day-to-day experience is probably not going to be all that drastically different to yours. Trust their experience.

Let’s get specific. Let’s say you don’t know much about computers but you know you need a new laptop. Want to get the best laptop at the best deal? Find someone who is just obsessed with computers. Tell them you hope they will do you a favor (people always like to be asked for favors.) Tell them you know they know a ton about computers (people like to be recognized as experts.) Tell them what you need your laptop to do, and ask them what you should buy. Their first recommendation will probably be the best one.

I have used this method over and over to save a lot of money on cars, computers, video equipment and, realistically, even my house. Long gone are the days when I would buy a computer based on a sales-person’s recommendation. (The absolute worst computer I ever bought was purchased that way.)

Know who the “maximizers” are in your life, the people who are experts on whatever you’re considering buying, and listen to their stories. These “maximizers” are after perfection, which most of us don’t need. But along the way to perfection they acquire an enormous amount of information which you can get absolutely for free. And then you can save a whole lot of money with it!

Predicting happiness is hard, but I think I'd be happy here too.
This pug knows how to maximize vacations.

Listening to people in your life that have actual experience instead of the salesperson at the store or the real estate agent trying to score a commission will save you money–and get you a better experience–almost every time. Feel free to scour the internet for tips and tricks on how to save money, but even there, learn from peoples’ actual experiences.

And now it’s time to talk about one of the most important things I ever learned from other peoples’ experiences. Small victories are the only ones that matter, and we need to celebrate them.

Take the Class Exercises
Move on to the next class: Small Victories
Return to the list of classes