Monday, October 18, 2010

overestimating control, continued

It's true that underestimating the role of fate or external forces, and likewise overestimating the power you hold over your life outcomes, is a good way to be successful in those outcomes. If you overestimate the expected marginal utility of actions, you will do more of those beneficial things, and end up better off in terms of those actions.

You might object that this extra success isn't worthwhile in total happiness, since you expended 'too much' effort (just as with noise traders who overestimate returns, they end up richer but less happy.) But I think other behavioral biases point towards too little action even more strongly than overoptimism leads to too much action, so there's really no downside to believing too little in luck.

One overwhelming factor is of course present-bias. Even people who know that something is worthwhile put off doing it. Unless you are naive enough to fall victim to the "if it's worth doing, do it right, tomorrow" logic*, overestimating the positive impact of something can only help you overcome procrastination.

But even beyond that, happiness is a very psychological thing that you can't measure in terms of income and hours of effort. After the fact, I don't remember the unpleasantness of a task; in fact, if it was a beneficial task that I had unusual foresight to undertake, I'll feel good about having done it. The happiness from that lasts a long time and far outweighs an ephemeral cost. Beyond that, people are confirmatorily biased. If I did something that I expected to be beneficial, I'm going to insist on being happy about it afterwards even if objectively the outcome didn't measure up to my expectations.

Of course, since I personally believe I hold a great deal of control over my fate, I could believe this argument itself as a result of confirmation bias... ah the pitfalls of self-study.

*I don't really think this possibility is relevant. If you overestimate benefits, you do so for everything, not just the more costly and more long-run-beneficial of two possible actions. By the way, for any noneconomists reading, I meant the vocabulary "naive" "worth doing" "do it right" and "tomorrow" in a technical sense, so don't jump on me if your intuitive interpretation is something else =)

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