#18: You cannot count. This leads you to make idiotic financial decisions.

18th January, 2021

Welcome to the Idiot Money newsletter. The newsletter that knows a, b, c, isn't as easy as 1, 2, 3.

This week: becoming wiser with money by understanding that money isn't the universal, objective, instrument of calculation you thought it was.

To make wiser decisions, recognise that you cannot count accurately

You may have been doing it since you were three, but you’re crap at counting. Don’t worry, everybody is. Sure, you can add one to any given number, but you can’t count in a meaningful way. Recognising this is key to making wiser decisions.

In terms of how numbers translate to meaning, counting tends to go something like: one, two, three, some, lots, loads. We’ve seen how important precise appreciation of opportunity costs can be to making wiser decisions. Recognising commonly overlooked inputs is crucial, but if you can’t count them properly, your decision-making could still suck.

When it comes to getting a grip on making the most of your resources, it would be great if you could appropriately distinguish between a million and a billion, but you can’t. No one cares 1,000 times more about a billion than a million. They’re both ‘loads’. One is intellectually a bit bigger than the other, but in terms of guiding our actions, one unimaginably large number is pretty much the same as the next one.

This is a problem, because to make wiser decisions, we often need to be sensitive to this sort of scale, but our decisions are driven by feelings that aren’t up to the job. In these situations, we need to find a way to delegate the decisions to the calculators. This often feels weird and inhuman, but not doing so could lead to inhuman actions.

This is felt most keenly in donating to charity, where our gifts tend to be subject to the assertion possibly misattributed to Stalin, that ‘a single death is a tragedy; a million deaths is a statistic.’ One ‘identifiable victim’ will forever exert more influence over our wallets than a million otherwise identical souls.

As Nate Soares wrote:

The loss of a human life with all is joys and all its sorrows is tragic no matter what the cause, and the tragedy is not reduced simply because I was far away, or because I did not know of it, or because I did not know how to help, or because I was not personally responsible. Knowing this, I care about every single individual on this planet. The problem is, my brain is simply incapable of taking the amount of caring I feel for a single person and scaling it up by a billion times. I lack the internal capacity to feel that much. My care-o-meter simply doesn't go up that far. And this is a problem.

This isn’t just about charity (though as we’ll see later, that has a uniquely important role to play in – selfishly – allocating resources towards each individual interpretation of a Good Life). Just as Soares continues, that ‘prominent altruists aren't the people who have a larger care-o-meter, they're the people who have learned not to trust their care-o-meters’, so those living well aren’t those that are better calculators of the opportunity cost of every decision. They’re the ones who’ve learned to better control their decision-making machinery. Who’ve learnt to live examined lives with a view to focusing on what makes their lives better and ignoring everything else. Who’ve learnt, as per our earlier discussion of ‘the two types of financial errors’, to cultivate better filters for problem formulation, and better processes for problem solving.

Alas, the mind-altering drug of ‘more’ makes us abandon any idea of a filter. And it doesn’t matter how great your processing power is if you’re tidying up stuff that should’ve just been thrown away.

There is, however, a potential upside. Our inability to cope with big numbers is bad when thinking about the world, but it could be good if we’re thinking only of ourselves. If we learnt to trust that we were incapable of feeling any different if we hoarded wealth on any part of the ‘loads’ scale, from ‘can easily afford the odd holiday’ to ‘billionaire’, we’d probably waste less of our lives trying to gain more wealth simply for the sake of it and do something a bit more meaningful instead. We may come to understand, as explained by Derren Brown in Happy, that ‘while it remains clear that having less than you need is a source of unhappiness, having more than you need does not make you happier.’

Money Maxim of the week

Train to hear these words and phrases as you do you own name across a crowded room, then stop and check that the belief underlying your automatic reaction is true.

This week: Trigger #10: Rich, 1%

You're already rich. You're quite possibly already in 'the 1%'. Unless you think only a tiny percentage of people living in a tiny percentage of the world's (mostly Western) cities are worthy of you acknowledging their existence.

If you're making excuses for the quality of your life because you've confused it with the cost of your life, stop and ask yourself if it's really a matter of money.