“Sooner or later comes a crisis in our affairs, and how we meet it determines our future happiness and success. Since the beginning of time, every form of life has been called upon to meet such crisis.”
Have you ever met someone who was stuck in a timeshare that they were desperate to get rid of? They probably had been to some sort of presentation where they were wowed by a slick salesman who reframed the purchasing decision into monthly payments and emphasized how easy it would be to have the same vacation in the same place at the same time year after year after year. Then, when reality set in, these people realized that the future they’d envisioned was nothing like what they actually experienced.
There are times when we’re good at predicting how our future selves will feel, but there are times when Monkey Brain looks into the crystal ball, and we aren’t particularly good at predicting how we’ll feel about something in the future. As research from George Loewenstein from Carnegie Mellon and David Schkade from the University of Texas shows, we are subjected to a variety of cognitive biases that cloud our ability to predict how our future selves will react to situations. We’re great at predicting that if we eat a bowl of ice cream, we’ll reach a point of satiation, but we tend to think that accidents and calamities happen to other people and can never happen to us.
As a result, we tend to overestimate the extremes of feelings that our future selves will feel. This ranges from the joy we think that we’ll experience in winning the lottery to the agony someone in solitary confinement in prison would experience. Because humans are adaptive – which is why it’s easy to find yourself on the hedonic treadmill – while we may experience an extreme feeling for a short period of time, we do eventually adjust.
However, the inability to predict our true happiness at future outcomes can lead us to make decisions now which our future selves might not have wanted us to make. Let’s look at a few examples:
- College majors. We think that we really want to study underwater basket weaving or 5th century French literature because we will be fulfilled and intellectually enriched, and to heck with job prospects because we’ll figure that out when we get there (subscribe to the free 52 week personal finance game plan (and receive a complimentary e-book) to read about The Decision Most 18 Year Olds Aren’t Prepared To Make). Then, once we throw our diplomas and are stuck in unfulfilling and low paying jobs, we realize that we’re not as happy as our past selves predicted we would be with the decision.
Think instead: Think instead about majors which pragmatically lead to the highest paying jobs that we are capable of succeeding in. Having a steady job and a secure income will allow us the freedom to explore other topics which interest us. You don’t have to have a degree in French literature to read Proust or Voltaire.
- Buying a nice car now with an auto loan. It was shiny and drove smoothly. The salesman talked about how little it would cost if you financed it with a 72 month auto loan. You looked forward to being the envy of the stop lights. The reality is that you’re stuck in a loan and underwater because the car depreciated by one third the moment you drove it off the lot, and having a nice car hasn’t made you a better person as a result of owning it.
Think instead: Drive a beater and pay cash for it. Drive it into the ground. Save up to be able to buy a nicer car in the future. Determine what’s really important to you and focus your budget towards those priorities.
- Buying more house than you need because the mortgage lender said you could afford it. We did this. We bought a huge house because it was a builder bankruptcy, and then we proceeded to fill every bedroom with furniture in anticipation of the horde of guests who never came. When we had to sell the house, we were stuck with a house full of furniture that we didn’t need and had to sell at a deep discount to what we paid for it, even though we hardly used it.
Think instead: What size of house do you actually need? Can you rent (subscribe to the 52 week personal finance game plan, and in addition to receiving a free e-book, you can read the article “Why Renting for a Year is Better Than Buying When You Move”) rather than purchasing a house? Save up and pay cash rather than getting a big mortgage just because you can afford it.
- Keeping separate bank accounts after you get married. Again, this was one that we succumbed to for several years. Rather than merging your lives completely and working as one unit, people (we are included in this) act like it’s his and her money and then contribute to a pot of money to pay the bills. What winds up happening is that each person starts to keep a mental account of how much the other has contributed to the “joint” relationship and ticks off the individual purchases. Rather than focusing from a unified point of view, they work as if they expect to be independent again one day.
Think instead: Join your accounts from day one. Join the assets together. Work as if you’re going to be together forever, and work to be together forever. That will increase your future happiness! Trust me on that one!
- Advance directives which eliminate treatment. According to the previously cited study, when asked if they would undergo grueling chemotherapy to prolong life by 3 months, no radiotherapists said they would undergo the treatment. 6% of oncologists would take the treatment. 10% of healthy people said they would. Yet 42% of the people staring down the barrel – current cancer patients – said that they would undergo the treatment.
Think instead: Set up an advanced medical directive in the case of absolute incapacity where you cannot make a decision at all and must entrust the decision to someone else, but if you become sick but are still mentally capable, revisit the decision, as the sick future you will probably feel much differently about the situation than the current healthy you does.
Don’t let Monkey Brain take over the crystal ball when you’re making decisions now for what will impact you in the future. Remember that we tend to misestimate our feelings. Where we can, we should take advantage of real options to delay our choices into the future when it will be our current selves dealing with current choices rather than our current selves trying to ascertain future desires.
- John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.
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