Decision Making in Personal Life

Decision making is never easy, but always seems simple. At any time, there are a finite number of things you can choose to do; knowing what choices you have does not seem particularly difficult.

For example, a high school student has, at any time, the choice of how much effort to put into an assignment. We can simplify this to three options:

  1. put a tremendous amount of effort in;
  2. put enough effort in to get a passing grade; perhaps a B in today’s era of grade inflation;
  3. not do the assignment at all.

The choices are simple. The difficulty comes from how each choice impacts every other component of the student’s life. Parents may monitor the student’s grades, prepared to punish poor performance with sanctions sufficient to make choice (3) inadvisable. Choice (1) may seem attractive if the student intends to attend college, but pursuing it may make it difficult to spend time with friends; or perhaps be teased or mocked by friends for taking grades so seriously. Choice (2) may be the compromise.

This is a well-understood dilemma.

Evaluating a scenario, taking stock of the available choices, and forecasting potential results is difficult, and there is the distinct chance you will make a miscalculation, but there’s not much more to it. It’s a skill, and thus can be acquired through practice and mistakes. Life, I’ve found, is happy to provide opportunities for both.

I am interested in a related concept: What is a sufficient justification for making a choice?

For example, is “I don’t want to” a sufficiently good reason to avoid doing something? Is “I love it!” an ample explanation for a hobby? And is “I don’t care” reason enough to ignore something?

It seems, to me, that society at large – and by this I mean the culture of the United States – has accepted these as good reasons for behavior. People talk about pursuing their dream job, regardless of the cost; college students cite boredom and antisocial teachers to explain poor grades; parents respond gleefully to an indication that their toddler likes something. Of course, it seems equally true that there are times when “I don’t want to” has no bearing on behavior – few would turn away a family member in need simply because they don’t like them.

I am coming to believe that an emotion, in isolation, is never a sufficiently good reason for action; indeed, I am tempted to say that any transient emotion – desire, fear, anger, and the like – should carry no weight when making decisions.

Emotions are too vulnerable to manipulation to either be trustworthy or sustainable.

It is difficult to sustain an emotion, which makes it a poor reason for action. It is easy to become excited, but far more difficult to remain excited when faced with the prospect of work. If one’s justification for the work is the excitement, then the work will not get done. I admit that emotional reward may work in many cases, but only when the difficulty or likelihood of failure of the project remains below a certain threshold. If the probability of failure, or the difficulty, of the project increases above some threshold, the emotions attached to the project will change – for example, excitement at the chance for success changing to fear. It’s certainly possible in some cases to use the alternative emotion as a further motivator, but I wouldn’t recommend it. I would suggest that if you are relying on your emotional state to motivate you to work on a project, and you are succeeding, then the project does not challenge you.

I also find it difficult to trust an emotion – or, more accurately, to rely on an emotion being the same. Emotions are particularly vulnerable to delusion (false beliefs). A delusion will incite a corresponding set of emotions in the individual. I imagine that it’s possible to use these emotions to work on a project, or put more energy into something. For example, if you believe that when you die you will go to heaven, it makes it distinctly easier to face death. If you believe that sacrificing your life for God and Country will (1) help your friends and family, and (2) cause you to be rewarded in heaven with everything you ever wanted, it makes it somewhat more palatable to contemplate such a sacrifice. Suicide bombers fall victim to this delusion – their deaths seldom help their friends or family, and can directly harm them. Their rewards in heaven are possible, I suppose, if you accept their religion as fact; if you’re an atheist, it seems absurd.

These delusions have obvious benefit; they generate the emotional drive to perform an exceedingly difficult action.

The problem I have with them is what happens when the delusion is dispensed with. What if at a critical moment someone shatters your delusion? For example, a politician who believes that being elected will make his country a better place learns, halfway through his term, that his country is distinctly worse off as a direct result of policies he implemented? Leaving the possibility of him refusing to accept the fact and his responsibility for it behind, this would likely destroy his motivation for running for another term. (It might, of course, inspire him to correct his mistakes. But it might also ‘inspire’ him to commit suicide. Either way, he’s unlikely to run for re-election.)

There’s also the practical difference of establishing the delusion in the first place, and then the potential for distorting one’s perception of reality attempting to maintain the delusion.

The unreliability of emotion makes it a poor motivator; and thus, I believe, makes it an insufficient justification for action.

The difficulty I have now is discovering what else there is. Kant’s philosophy, rooted in obligation, solves the problem; but introduces others. For example: where does the motivation to uphold one’s obligations come from? There is the rather scary possibility that everything comes down to emotion (and delusion), which means that the best solution is one that is least susceptible to destruction.

Meditation

I have, in the past week, attended two meditation sessions.

I have always been interested in meditation, in no small part because the mental techniques Buddhist monks use were popularized by New Age thinkers, and create discernable changes in the brain.

Thus far, I have only practiced the relaxing “breathing” meditation, where you focus on a sensation related to breathing. Meditation is the act of directing all your attention onto one thing; in breathing meditation, it is a physical sensation. A byproduct of doing this is quieting the incessant background noise that normally occurs in the mind. Personally, I find that my mind makes hundreds of connections – thoughts, notes, memories – each minute. This is very useful, but can be both tiring and distracting.

While breathing meditation relaxes me, that’s no why I’m so interested in.

Meditation involves controlling attention, and thought. Any form of meditation is a practice of that skill.

Coincidentally, much of life involves attention and thought. I find that the most difficult part of any project, large or small, short or long term, solo or team-based, is focusing on the project.

I have a tendency to distract myself when presented with a difficult task, or one that seems never-ending.

This cartoon, which I found on Russell Beattie’s site, illustrates the problem:

This results in the project taking more time than it should; since my time is limited, this means that projects that have deadlines end up being of lower quality than initial projections, and that all other projects in my life are delayed. The things that I want to do for fun and self-actualization – things without hard deadlines – are delayed indefinitely.

It’s actually taken me a surprisingly long time to realize that was the cause. I had previously attributed my lack of productivity to the general phenomenon of ‘procrastination.’ The problem with that proscription, unfortunately, was that it’s proved useless at solving it. I’ve read books on procrastination, and they are wholly unhelpful. I know how to plan, how to manipulate my emotional regard for a project, and so on. I still work slower than I am capable of, produce lower-quality work, etc. There’s no doubt that procrastination is a part of the problem – a tendency to delay projects to the last minute, because I can – but that’s not a difficult problem to solve, assuming I can focus efficiently.

If I can systematically apply what I learn in meditation to other areas of my life, I should become more effective. Well – that’s the Current Operating Hypothesis.

CEO Pay

I stumbled across the economics working paper Why Has CEO Pay Increase So Much? in late February:

This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay changes one for one with aggregate firm size, while changing much less with the size of his own firm. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. The sixfold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies during that period. We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences. The data broadly support the model. The size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries.

The paper presents a ‘simple’ equilibrium model for CEO pay based on firm size. It’s certainly simple in theory, but I confess to stumbling a trifle when it came to the math.

I chose the paper to present to my 200-level Microeconomics Theory class, which I will do this coming Monday (10/22/2007).

If you have time, I recommend reading at least the introduction. If you don’t, allow me to summarize, in brief:

The paper uses the simplifying assumption that the market for CEOs is competitive; namely, that (1) CEOs have talent and companies can measure that talent (or, at the very least think they can estimate it pretty well), (2) CEOs impact firm value in some measurable way, (3) there are no industry-specific CEOs (e.g. the Harvard/McKinsey assumption), and (4) the market for CEOs is frictionless.

They demonstrate that most of the increase in CEO pay can be attributed to the increase in firm size – at least in the USA. This makes sense from a conceptual standpoint: assume that the impact a CEO has on a company is a percentage. The absolute value of a CEO’s contributions will depend directly on the size of the company; a larger company will receive a greater direct effect. If a company gives a percentage of the absolute gains in corporate value to the CEO as compensation, a CEO’s compensation will increase as firm size increases.

The truly interesting claim they make – based on empirical data – is that CEO compensation exhibits constant returns to scale in regard to firm size. There may be fluctuation in the short term, but over the long term CEO compensation will directly correlate with company size.

The paper doesn’t address – or try to – the entire increase in CEO pay. They also acknowledge that they are unable to make any concrete assumptions about international markets, mainly because the data is limited. Even assuming that everything in the paper is true, we still can’t know whether or not this is a US-specific phenomenon. This did not, for example, occur in Japan.

I like the paper, because it’s a good example of economics explaining a phenomenon without making moral judgments about how the world ‘ought’ to be. And, of course, if the paper is torn apart in peer review and later literature it’ll merely confirm the reputation of economists.