As part of my broader project of popularizing rationality and raising the sanity waterline, I'm writing a blog about how to make a major financial decision more rationally. The audience we're targeting are educated people into self-improvement, so the blog post, as all of our other content, is couched in that language and style. Any feedback on how to improve the blog to make the blog more clear and emotionally evocative, and thus better suited to spread rationality among a broad audience, would be helpful, as would specific comments on the methodology described.  The blog draft itself is below the solid line. Thanks!

P.S. The blog was inspired by this earlier LW discussion post.

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Avoid Emotional Traps for Your Happiness!

 

That backyard was simply gorgeous. Entering it was like going into a magic grove. Lush and shady trees spread their branches around you and protect you from the summer’s heat. Oh, and how beautiful the leaves would get in the fall. Can you imagine all the range of colors that would emerge – different shades of red, yellow, and orange?

The image of that backyard was my single most vivid experience looking for a new house after my wife and I decided to move. It was the strongest impression left after our day of intense house shopping when we were looking at the finalists on our list. I imagined myself lounging in a hammock in the shade of the trees all day, experiencing the calm of a majestic forest, except in the middle of a city. Yet unlike a forest or a public park, it was private, and could be all ours!  Exhausted and excited at the end of that long day, my wife and I discussed our top choices, and the backyard was the clincher for both of us. We told our realtor to put in a bid on that house, and couldn’t wait to move in. Little did we know, the backyard was a trap!

Ok, so that might have been a bit overly dramatic. We weren’t going to be swarmed by the Empire’s starfighters in that house. However, it was indeed a trap for our decision-making processes.

Why is that? Here’s an example of similar trap, see if you can spot it.

Doesn’t that Toyota FJ Cruiser look great going into the rugged peaks of the San Juan mountains? Yeah, it’s perfect there. Indeed, Toyota promoted it as the ideal car for that purpose. So if you live in the mountains and drive only there, it’s the car for you!

But let’s be honest. The vast majority of the customers do not live in the mountains, and spent the large majority of their time driving in the city or on highways, and the car had a number of problems for everyday driving. Toyota’s marketing was appealing for people who want to feel like they could go to the mountains, but in actuality, how often are you going to go there?

So now can you guess what is the parallel between the car and the house? If you guessed the actual usage of the backyard, you’re right! Just like taking the car on an off-road trip, using the backyard for lounging around all day is a relatively rare experience. On my days off, I’m much more likely to go visit my friends or go out with my wife than lounge around. I was excessively motivated by my emotional thinking system’s attachment to one aspect of the house at the expense of everything else. This is a classic thinking error, called attentional bias, caused by our brain’s tendency to focus on emotionally dominant information in our environment. Such emotional traps could really undermine long-term happiness with big decisions, such as getting a new car and especially a new home!

Fortunately, my wife and I avoided this trap. The next day after we told our agent to make the offer, we decided to re-evaluate our decision by applying the tool of probabilistic thinking to our estimated likelihood of happiness with our new home.

Below is a photo of our calculations. We compared our first-choice house (170) to our second choice (450). To avoid excessive emotional attachment to any part of the house, we wrote out the various parts of the house (first column). We then gave each a rating of quality on a 1-3 scale, from low to moderate to high. Then, to account for the actual usage of each part of the house, we gave the same rating to usage. We then multiplied both of these numbers by each other to get total value (only the total value is included in the chart). Each of us gave our own ratings for each category to account for our different intuitive valuations of the rating of quality and usage, as you can see from the separate columns for A and G, Agnes and Gleb. Finally, we added them all up at the bottom, and included a couple of small fudge factors due to things like price difference.

 

Both of us were really surprised by the result. Our second-choice house beat out our first-choice house, and by a lot, 95 to 67.5. We were way off base in our initial decision-making due to our attentional bias on the backyard, which turned out to be much less significant than we originally anticipated once we accounted for actual usage. I shared about my experience with others, and many had similar stories. We quickly called our realtor and asked her to make the bid on the second house. We were so excited when it was accepted!

From that episode, I learned that this type of calculation is incredibly valuable when making any significant financial decisions that can impact your long-term happiness. So how can you use this method to avoid emotional traps for your own happiness?

Let’s go back to the car as an example. Before making a decision, sit down and assign numbers to various components of the car. First, consider how you plan to use the car – city driving, highway driving, road trips, driving in the mountains, driving by yourself, driving with family and friends, driving your date, etc. How much of your time will you use the car for each activity and how important is each activity for you? Assign a numerical value to each activity based on a combination of usage and importance. For instance, you might not be taking family road trips often, but it might be important for the car to be really well suited for those times, so give a higher number for that area.

Then, based on your usage ratings, consider what aspects of the car are important to you – safety, gas mileage, comfort for the driver and passengers, trunk space, off-road capacity, coolness factor, etc.? For example, it might be important to you to impress your dates and friends with your car, so give a higher rating to the coolness factor if that’s the case. Or it might be very valuable to have comfort for yourself and good trunk space if you are taking long car trips around the state for your job. Assign a numerical value to each based on your personal evaluation.

Now, you have a great list to look for in a new car! You know what aspects are most important for you, and are much less likely to be led astray by attentional bias due to test-driving a fun car when you actually need a family-friendly one.

Apply this method to any significant financial decision – car, furniture, vacation, computer, house, etc. A smart investment of less than a half-hour of time could lead to a much happier future for you. Moreover, with a little imagination, this method can be applied to any important decisions, not only financial ones. In future posts, I will discuss how to quantify less tangible values to make the most optimal decisions for your long-term happiness.

Questions to consider

• What are your strategies for making big decisions wisely?

• Has attentional bias ever led you astray in big decisions? If so, how could you have applied what you just learned to your previous decisions to make better ones?

• What kind of significant financial decisions do you have coming up? What kind of factors might inspire attentional bias in these decisions? What specific steps can you take to avoid these problems?