Why are we so bad at predicting things?
Specifically, why are we so bad at predicting what’s going to make us happy?
Those two questions have bothered me for years. I think now maybe I’m ready to answer them. In the past I’ve often pointed out that our brains aren’t satisfied as long as we are comparing things, and that decisions need to be reduced to yes or no questions. And I stand by that. But lately I’ve learned that there is more to the comparison problem than I thought.
When we try to predict whether something will make us happy, we tend to make a basic error. And it’s an error that’s similar to those optical illusions that are so popular. Even when you see it proven that, yes, this is an optical illusion, you can’t help but still see the illusion. You intellectually know it’s an illusion, but it still appears real. The mistakes we make when predicting things are like that. Even when I know what the mistakes are, I keep making them mentally. I just have to constantly remind myself that, yes, this is an illusion.
The problem comes down to the fact that we will literally be different people at the time we are actually experiencing something then we are when we make the prediction. The person who is trying to predict whether an experience will make them happy is not the person who is actually going to have the experience.
Here is a simple, 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.
That’s a trivial example, but it expresses the point nicely. When you are predicting, you’re comparing. But when reality hits, you are just experiencing.
We can get ourselves in real trouble if we forget this lesson when it comes to big decisions like careers, marriage, or where to live. Back when taxes were my main career, and it was the middle of tax season, I spent no time ruminating about what other careers I might have pursued. There was no time for that. I was dealing with client concerns, doing tax returns, checking tax returns, re-checking tax returns, answering emails, and making sure the entire system ran smoothly.
These detailed experiences pushed out any concerns about what else I might have done with my life. And it’s true now with the careers I have today. Sure, when I relax, I might let my mind wander and think about other things. But this is no different from when I’m playing video games and I’m a Jedi knight on Tattoine. It’s just a fantasy to help me relax, not a realistic comparison.
If someone is trying to decide on a career, what’s important is to find a career that will match with your deep values and your general personality–and that pays enough to get you wherever you need to go in life. Because if you don’t have the sort of deep values that make doing tax work fun, invigorating, or at least tolerable, you won’t last as an accountant. And it will make no difference that being an accountant might be superior in comparison to some other option (that you didn’t take anyway), because the day-to-day experience takes over.
Here’s another great example, and anyone thinking of buying a home can learn from it.
For many of you, where to live is the single most important financial decision you will make, because it will dramatically affect your monthly expenses, your social circle and even your health. Trying to make that decision by comparing a potential new home to the current residence will lead anyone astray.
When I bought a house, within one month I had already almost completely forgotten what it was like to live in the place I used to live. Instead of remembering the past, my time was consumed with figuring out why the washing machine didn’t quite work the way it should, how to put in flooring in the garage so I could turn it into a music production/dance studio, and how to keep the stupid ants out of the house.
And certainly today, my mind is not concerned with comparing my house to some other place. Now if I visited my old residence every day, things might be different. But our brains have an incredible ability to simply let go of past decisions once they’ve been made. This is completely different from the mindset I was in while I was looking for a house. Fortunately, I know how my brain likes to mess up decisions. Instead of allowing myself to compare, I turned every decision into “yes” or “no”. And lo and behold, using that method, there ended up being literally only one house I could absolutely say yes to.
And of course, especially when it comes to big decisions, the reality is also that we become different people over time. And it seems that we all underestimate how much we will change. That makes predicting future happiness even more difficult.
When it comes to investing, people can run into the same issues they face when trying to choose a career or a place to live. What’s important as an investor is to find a strategy you understand, that fits your tolerance for risk, and that will get you the retirement income you will eventually need. (And remember that you will be a different person when you retire than you are now!)
The investing decision has to become yes or no. Constantly comparing strategies will not only lead to unhappiness, but research suggests that it leads to poor results, because investors end up jumping into and out of strategies at exactly the wrong times.
I once had a prospect who floated the idea that he wanted to have 3 different financial advisors to protect his money. I very rarely have to tell anyone that their ideas are just terribly misguided, but this was an exception. I can think of no better way to have a miserable investing experience than to have multiple advisors. Thankfully, he changed his mind. He never became a client, but I still consider that to be one of my real victories in terms of getting someone on the right path to financial freedom.
We really underestimate our minds’ ability to cope (or rationalize, depending on your perspective) and to make peace with our own past decisions. And we just as consistently overestimate our ability to predict anything. Similar to seeing those optical illusions, we might not be able to stop ourselves from mentally making those predictions. But we can certainly stop ourselves from acting on them.