Optimizing for Experience

Optimizing for Experience


Here is something I've been thinking a lot about lately...

How would one design a perfectly optimal strategy to experiencing their life?

Think about that for a minute..

Most of us spend the early years of our life just trying to figure ourselves out. By the time you get to college you've just barely begun to grasp how much road you have ahead of you, and what you should do with all that time. For me at least, this was the first time I really started thinking about what I actually wanted in life.

Soon you're in your early 20's working (really hard) at your first job, saving what little pocket change you have left after paying your expenses for a drink at the pub, and enjoying the freedom of adult life. Now you're 25, where did the time go?

When I first started thinking about designing an optimal life, I did what I always do and broke it down into two areas that would seemingly help you make a good life design decision:

  1. Data Acquisition - As you experience things in life, you gain experience (data), and thus you have a greater perspective on the larger set of variables.
  2. Decision Making - Once you have a good data set, you can work backwards to a solution.

There are some obvious and not-so obvious flaws in that thinking. Lets explore a few that I find to be interesting.

We're working with incomplete information

This seems obvious, but as we experience events in life we sometimes change our perspective. Changing perspective sometimes means what you once loved to do at 18 might not make you as happy at 40 years old. As the saying goes in software, if you wait to ship the product until it's perfect, you waited too long.

When someone tells you to do what makes you happy, how do you handle that? What will make you happy in 5 years? In 20? Not everyone continues to push themselves to be in situations that open their preexisting perspective, some live their lives for that opportunity.

Even unlimited data can be a disadvantage

Recently I was flying home and listened to the Tim Ferris podcast 'Tribe of Mentors' with guest Adam Robinson.  This episode features Adam Robinson, an independent global macro advisor to the chief investment officers of a select group of the world’s most successful hedge funds. Tim asked him, "what are bad recommendations that you hear in your area of expertise (global finance)?"

Adam went on to talk about cookie cutter information we receive in schools, and how most live their lives under the incorrect assumption that by gathering more understanding of the world, the better their investment results (knowledge acquisition + decision making). But Robinson notes that in the investing world, too much knowledge can actually hurt your results more than it helps.

In 1974 Amos Tversky and Daniel Kahneman published a paper called 'Judgment under Uncertainty: Heuristics and Biases'. The research looks at the affect of information in decision making, and as Adam points out, this should be required reading at every business school in the country. They provided a set of data points (5 to begin with) to seasoned professional gamblers and asked them to predict the results of a set of horse races. Piece of cake, right?

After each round, the experts were given more and more data points to evaluate. As it turns out, more data didn't actually help them achieve more accurate results. What did happen however, is their confidence in those picks grew but their results remained stagnant. This excess confidence reveals confirmation bias, a trick our brain plays on you when the information that confirms our original decision and blinds us to sub-optimal decisions in the future. The more you become attached to the ideas we hold to be true, the more blind we become to reality due to the world being far too complex for us to possibly understand.

The important lesson here is that good decision making is not about the amount of information (or even the quality), it's about how you act on that information. One must recognize the moments when your mind may be playing tricks on you and leading you to conclusions that may be way off.

Re-thinking financial planning

Money isn't everything. It sure isn't the sole thing that will make you happy, but it does limit what you can experience in life. For most, it also constrains when you can have experiences. If you ask anyone if they would like to take a year off and travel, you would get a lot of volunteers. However most just aren't able to make this happen financially unless you are lucky enough to come from an affluent family.

For the rest of us, we have to think outside the box. That's exactly what Bill Perkins, a successful commodities trader, suggests on one of my favorite podcasts. What if your passion in life was a dangerous extreme sport like heli skiing? Would you wait until you're 65 to enjoy it? Not a chance, you'll be incapable physically.

The reality is that most of us trade time for money, and in doing so we follow a linear progression in our net worth. As we build wealth our options increase, but there's a catch-22. Not all experiences follow the same path. If you want to enjoy heli skiing, a sport that is both expensive and hard on your body, you have a limited window to partake in the activity without putting yourself in extreme danger. It's also pretty darn expensive to have a helicopter drop you off at the top of a mountain.

Lets take three activities (heli skiing, world travels & chess) and plot them out just for fun. The X-axis is your age, the Y-axis is your net worth.

Could poor financial planning rob you of an optimal life?

Could poor financial planning rob you of an optimal life?

In the above example you take a 'normal' path to wealth creation, capping out at the end of your life with most of the growth coming in the prime of your career. Playing chess, although not the most exciting activity in the world, offers you a stable level of enjoyment through most of your life. Heli skiing misses the boat, as it's too expensive for you to enjoy at the age you can experience it. Traveling the world is a bit less extreme and can be experienced over a larger span of life, but eventually it becomes a burden as your health fades. For the lucky ones who maintain health & wealth, there's a window where both align. Not everyone is so lucky, nor are we all willing to gamble a majority of our lives working for the chance we'll be able to enjoy it.

That's not the only way.

Two questions come to mind when considering alternative strategies:

  1. How much of a mistake is it to die with money in the bank?
  2. Should you go into debt early on in life to better align with your desires?

Let's take a look at an alternative approach.

Would you sacrifice long term wealth to optimize for experiences?

Would you sacrifice long term wealth to optimize for experiences?

The above is a financial planners worst nightmare. Flying in the face of conventional wisdom (and compounding interest), you go into debt in your 20's to maximize experiences while you can. Ultimately, you sacrifice quite a bit of wealth in the long-run, eventually spending your last dollar on your last day on earth. Would you be brave enough to take such a bold approach to life? Should we be encouraging young people to skip university and go vagabonding around the world? What is the value of that experience? How does it change your perspective, your creativity, your empathy and your sense of fulfillment?

You must be the master of your own kingdom

I don't believe in heaven & hell. But I would imagine that the most hellacious version of reality would be regretting the way you lived your life when you're on your death bed. Looking back and saying "I wish I had ______". 

At the end of the day, you only have to answer to yourself. When we all meet our end, none of the societal pressure we put on ourselves will matter.

This great story from Guy Ritchie is worth the time. Thanks for reading.

What's Your Edge?

What's Your Edge?