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Commencing To Avoid Decision-Making Potholes

American’s do not now inhabit a world known for careful thought, much less careful reflection. Given that Socrates argued that the unexamined life is not worth living, it can be worth taking advantage of opportunities when they arise. Commencement is one such time, when graduates and their families are on the brink of substantial changes and the challenges that go with them.

As an economist, I ask myself what my field can contribute to such discussions. John Maynard Keynes once wrote that economics “is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.” In other words, economics does not offer ready-made answers (despite pundits’ efforts to tell you that they do have them), because choices often have so many determinants that “it depends” is often the most common initial “answer” in the real world.

Despite that, economic principles can help us make fewer mistakes. Sometimes I express that in class by saying “I can’t tell you how to get rich, but I can help keep you from getting poorer.” Consider some of the decision-making potholes economics can help you navigate on the road of life in the real world.

First, one must remember that while economic principles are relevant and valuable, they are not the only thing necessary for wise choices. They do not provide the required facts or judgments. You are responsible for that. In fact, pervasive uncertainty means we often cannot know the “right” choices, since any option will turn out differently in differing circumstances. Instead, we must exercise our judgments about the unavoidable tradeoffs faced in an uncertain and changing world.

Economics concerns the consequences of scarcity – the fact that what we desire (including for others we care about) will always exceed what we can produce. One implication is that whenever resolutions are based in the belief that some change, say, a higher income, will eliminate scarcity’s limitations, they are misguided. As Johnny Carson once quipped, “Having more money doesn’t mean having fewer problems; the problems just have more zeros after the dollar sign.”

Further, while we can determine our actions, we cannot determine our feelings (although many have observed that acting with charity makes one feel more charitable). Consequently, efforts to control how we feel are largely futile wrestling with the uncontrollable. And when we resolve to fix everything about ourselves at once, we make failure and discouragement, rather than improvement, much more likely.

Scarcity means we are forced to choose. Consequently, knowing what choices are faced and who has the power to make them is crucial to effective choices. Even standing pat is choosing the status quo over alternatives. And since each of us decides our own actions, “I had no choice” is not a valid excuse.

We must also remember that we cannot determine choices made by others. The only persons we can ultimately improve are ourselves. We can become more likable, but we can’t make someone like us. We can resist giving offense, but we cannot assure that no offense will be taken. We can work to become more successful, but our efforts alone do not determine results.

Choices made now can only change the present and the future. They cannot change the past. Yet acting as if the past will be changed by current choices is common. Many overwhelm themselves with guilt about their past and give up. Others get so tunnel-visioned about the past that they sacrifice their present and future in a futile effort to unmake the past or avenge previous wrongs, real or imagined.

Our choices must therefore, to be sensible, focus on the present and future. We can apologize, forgive, and begin to make past wrongs right now. Letting the past stop such actions is simply making another mistake. And we must look to future consequences, as well. Living more in the moment can be an antidote to sacrificing current happiness to invest everything in hopes of a better future, but it is also a mistake to “just live for today,” when today has important consequences for tomorrow.

Since choosing entails giving up something else we value, every choice has an opportunity cost, the highest-valued alternative foregone by the decision-maker. This implies that “right” choices need not remain right when the relevant costs and benefits change with circumstances. It also explains why perfectionism can be a curse when it involves becoming better and better at one thing, while sacrificing improvement in other areas where we may have far more growing up to do.

Since choices are typically not all-or-nothing but rather about whether to do more or less of something, starting from one’s current circumstances, economics focuses on such marginal choices. Yet people often try to commit to always or never doing things. But in troublesome areas for us, lapses are almost certain. That sets us up to quit as soon as we first falter, short-circuiting chances for success.

Economics also has other “cognitive therapy” insights to offer, and not just to those commencing new phases in life, because it deals with what Alfred Marshall termed “mankind in the ordinary business of life.” And while few people seem to notice, those principles offer the chance to improve our lives every day, because every day presents a new beginning when the past and its failures need not control us.

Gary M. Galles is a professor of economics at Pepperdine University.

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