Author: Richard Meadows
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Arguably, many of these trades are asymmetrical in the wrong direction. There is such a thing as negative optionality: if you get hooked on meth or run up a gambling debt to the local mobsters, you have destroyed the right to take certain actions, and imposed an obligation in its place.
This is no accident. Consumer capitalism is designed to give us the illusion of great choice, even while it traps us within one narrow sector of possibility-space. Its branching confusopolies ensnare our monkey minds, and steal our most precious resources: money, time, and attention.
The only way to 'solve' an intractable problem is to reject its assumptions. Alexander the Great, faced with the impossible task of untangling the Gordian knot, pulled out his sword and chopped it in half.
My inspiration for making this leap came from Henry David Thoreau, the poet-philosopher who built a cabin on the shores of Walden Pond. Thoreau is one of my personal heroes, and you’ll see his influence throughout these pages. But he was also kind of a dick. He tut-tutted about the masses leading “lives of quiet desperation”, while he ate his umpteenth meal of camp bread in his bare shack, and penned self-righteous sermons on the evils of gossip, railroads, and fancy hats. Worse; Thoreau was a big old hypocrite. He could only live out his cabin-porn fantasy because he was squatting on land owned by his mate Ralph Waldo Emerson. Our famously rugged individualist also forgot to mention that his mum did his laundry and baked him cookies. He had a Harvard education, rich friends, and was only ever a 20 minute stroll away from his family home.
Having more money unlocks a lot of doors, but not all of them. Some pathways are only open to those who have built up enough social capital, or health and fitness, or skills and knowledge, on which, more later. But the doors are creaking open. Which ones to step through? ASYMMETRIC OPPORTUNITIES Systematically collecting high-quality options is the equivalent of unlocking doors that might lead to precious Treasure Chests: say, a financial windfall, a new friend or loved one, a job offer, a successful business, an excellent investment opportunity, a life-changing idea or epiphany, and all the things we generally associate with 'good luck'. Unfortunately, most of our time and attention is consumed by endless variations of low-quality options. Consumer capitalism presents us with doors and passages which only lead us deeper into the labyrinth, distracting us from making the decisions that really matter. These low-quality options are Dead Ends. They sometimes lead to modest rewards, but it’s a lot of effort for not much loot. If you hit a dead end, at least you can retrace your steps. But sometimes you open a door that you’ll never walk back out of. These are the high-risk options which have a small chance of sending us tumbling into a Bottomless Pit of Doom: addiction, financial ruin, ideological death spirals, disease or disability, accidents, investments that blow up, and all the things we generally associate with 'bad luck'.
BUYING HAPPINESS There’s no guarantee that money can buy you love and health and happiness, but spent wisely, it gives you a pretty great shot at it. Think of it like a game of poker: there’s always an inescapable element of blind luck involved, but a skilled player with a large enough bankroll to make trade-offs over multiple games almost always does well for herself in the long run.
Eudaimonia plays merry hell with the instruments of the happiness researchers. Paradoxically, the good life often involves the denial of pleasure, or deliberate suffering. If you ask parents how they feel in the moment—up to their ankles in dirty diapers, sleep-deprived, social life obliterated, forced to endure torturous violin recitals—they’re invariably miserable compared to their childless peers. And yet, many describe having children as one of the happiest and most satisfying experiences of their lives.
SLAYING THE HAPPINESS CHIMERA In Greek mythology, the Chimera was a fantastic creature made up of incongruous parts: the body of a lion, the head of a fire-breathing goat, the tail of a serpent. The popular conception of happiness is also a chimera—a cluster of loosely related traits stitched together, some of them contradictory, which doesn’t exist in any coherent way. This fantastic beast is a shapeshifter which adapts to its environment, and never stands in one place for long: it only exists relative to our expectations, to our peers, and to our past experience. We think of happiness as an outcome—reaching the shrine at the top of the mountain, where the chimera makes its lair. Instead, it’s an ongoing process—an instrument that measures the distance to various reference points, evaluates our success in relative terms, and propels us forward when the meter dips too low. The Greeks believed that laying eyes upon the chimera was an omen for disaster. Imagine if you could take a helicopter directly to its lair. As soon as you reached the top of the mountain, you’d have nowhere left to climb. This is why the most vicious of the three Chinese curses is disguised as a polite pleasantry: “May the gods give you everything you ask for.”4
The counterintuitive insight is that having options is valuable in and of itself, regardless of whether or not we exercise them. For example, I deliberately go several days without eating a couple of times a year. It’s not very much fun, but I believe that fasting improves my life.7 Under the naive hedonic calculus, my self-imposed ‘hardship’ is equivalent to someone who is genuinely starving, because they couldn’t afford food that week. Clearly, the ability to choose makes all the difference in the world. I have the right to exercise the myriad alluring options in my well-stocked refrigerator, but no obligation to do so. If those options weren’t available to me, my experience would take on a radically different meaning.
The cockroach-and-cherry asymmetry is a recurring motif in investing, health, and relationships. Losing $100,000 feels much worse than winning the same amount feels good. If you say one nasty thing to your partner, it’ll take five good deeds before you’re allowed out of the dogbox. Staying alive is more about avoiding death than diligently eating your vegetables.
The mundane reality is that winning is mostly about not-losing. Think of a counterintelligence agency which works tirelessly behind the scenes to foil terrorist plots: if it’s doing its job well, we’ll never notice anything at all. Most risk accumulates silently in the background, and is attenuated just as silently. ‘Winning’ is making it to 40 without falling into a Bottomless Pit of Doom.
EXPLOITABLE ASYMMETRIES A pair of economists are walking down the street. The younger one looks down, and spots a $20 bill on the pavement. “Hey, a twenty-dollar bill!” he says. Without so much as a glance, his older and wiser colleague replies, “Nonsense. If there was a twenty-dollar bill lying on the street, someone would have already picked it up by now.” The takeaway of this old joke is that a) economists are deeply unfunny, and b) sometimes there really are $20 notes lying on the pavement. In financial capital: every middle-class Westerner is extravagantly wealthy, by any historical or geographical standard. We just have to be a tiny bit less profligate than our fellow bubble residents, and we can skim a big old surplus off the top. And yet… almost nobody does this. Instead, spending inevitably rises in lockstep with income, many people are hopelessly indebted, and almost everyone is stuck playing the conspicuous consumption game. In social capital: for the first time in history, we’re no longer confined to associating with a handful of people who grew up in the same village. We have an array of near-magical tools to meet and communicate with people around the world. We can find a group for any niche interest or hobby under the sun. We can email almost anyone in the world, and they might even email us back. And yet… a great many people don’t have the time or capacity to invest in relationships, and the average American hasn't made a new friend in five years. In health capital: food has become so cheap that our main problem is having too much of it. We understand the basics of how to exercise, eat well, and prevent disease, and have an unprecedented amount of leisure time to put it into practice. And yet…many people struggle with poor health. Longevity has started to go backwards in the US and UK, and it's exceptional to make it into adulthood without some kind of physical or mental affliction. In knowledge capital: public libraries have millions of titles on loan. YouTube has tutorials for every subject you can imagine, and some you can’t. There are free courses online, many of them offered by prestigious universities. The sum total of humanity’s accumulated knowledge is available at the push of a button. And yet… one quarter of American adults didn’t read a single book in the last year. TV and social media consumes vast swathes of our lives, and attention is hopelessly fragmented. As the computer scientist Cal Newport points out, the ability to do deep work is becoming increasingly rare at exactly the same time it is becoming increasingly valuable. These are truly astounding asymmetries. What the heck is going on? One explanation is that the low-hanging fruit are only visible if you’re willing to look at the world in a different way, like one of those Magic Eye puzzles which hides a secret image in plain sight. Like the senior economist, most people don’t even bother to look. It's hard enough to spot the $20 bills in the first place, let alone ignore our older and ‘wiser’ peers and actually pick them up.
If the French critic René Girard was still above ground, he’d explain to the confused anthropologist that among our species, the intensity of competition tells you very little about underlying value. Instead, we borrow our desires from others: a toddler will try to seize a toy which held no interest to him until his playmate wanted it—and we never fully grow out of this tendency. It sounds tautological, but many popular things are popular merely because they are popular. Girard called this process Mimesis. As his student Peter Thiel put it, competitors often become obsessed with their rivals at the expense of their self-proclaimed goals: “People will compete fiercely for things that don't matter, and once they're fighting, they'll fight harder and harder.” If you’ve ever watched six year olds playing soccer, you've seen how these herding behaviours play out. While the entire mob is running after the ball, jostling and elbowing each other for position, the rest of the field is wide open. If a single individual was able to stop blindly following the pack, they’d be much better positioned to score. This, then, is the final rule for building optionality: you have to ignore what everyone else is doing, and think carefully about what is worth competing for.
To a surprisingly large degree, we are our own jailers. Continuing to play negative-sum status games and stacking up material possessions past the point of diminishing returns makes about as much sense as banging your head against a brick wall.
The optionality approach to planning is summarised in the popular aphorism 'better to be vaguely right than exactly wrong’.3
CONSPICUOUS CONSUMPTION In Spent, Geoffrey Miller calculates the ‘cost density’ of various products and commodities, and finds that the basic necessities of life—food, water, air, clothing, shelter—typically cost less than $5 per kilogram. His conclusion is that “living doesn’t cost much, but showing off does”. Once we get above the cost density of silver bullion (~$500 per kilogram) we enter what Miller calls “the magical realm of consumer narcissism”. This is where we find the self-stimulating products, along with those designed for flaunting or faking fitness: cosmetics, weight loss pills, branded electronics.
This is the part that's hard to capture in the paradox of choice studies: the relevant reference class here isn't 'marinara sauce'—it's the entire space of interesting or high-impact decisions, all of which draw upon limited attentional resources. We can choose between thousands of different types of breakfast cereal. But why eat cereal? Maybe simple carbs aren't the best way to start the day. It took me a long time to discover that I not only perform better when I fast in the morning, but the ‘breakfast is the most important meal of the day!’ thing was literally a marketing slogan invented by one Dr Kellogg.3 The point is not that you should skip breakfast. It’s that this is a more interesting choice to consider than ‘cornflakes or ricies’. When we’re buying a car, we can choose from hundreds of brands and several thousand models, each of which has its own slew of customisable features. Four doors or five? Walnut paneling or bamboo? Prospective buyers spend hours doing research, taking test drives, visiting car lots, and mulling over their decision. But how many have done the math on how much healthier and wealthier they’d be if they walked or cycled instead? How many calculated the depreciation cost of buying new compared to secondhand? Or figured out how many hours of life they’d have to sacrifice to keep up with the payments on the finance plan?
Consumer capitalism creates the illusion of great choice, but the branches of the possibility tree are almost all minor variations on the same core theme. This is Faux Optionality: an overwhelming array designed to keep us confined in one narrow sector of possibility-space, and obscure the decisions that actually matter. The relatively few options worth pursuing are those with a positive asymmetry: is the downside capped? Is the upside large or unbounded?
The self-stimulating and status-seeking products of consumer capitalism almost always fail this test. In the worst-case scenario, they cast us into Bottomless Pits of Doom: superstimuli, addiction, and signalling games that ratchet towards financial ruin. Even at their most innocuous, they’re Dead Ends that steal our time and attention, drawing us into a labyrinth that leads us further away from the doors that are worth opening. When information costs more than it's worth, the only winning move is to carefully steward your ignorance—to strike at the root of the possibility tree, and refuse to engage with its branching confusopolies. Rationality is not about making perfect decisions. It's about choosing what to choose. Nowhere on Martha Nussbaum’s list of core human capabilities will you find 43 brands of laundry detergent.
BRYAN’S BEAUTIFUL BUBBLE On the face of it, the admonishment against forming bubbles of like-minded people and insulating oneself from groups with different views sounds reasonable. But this is just the myth of unconditional love again, except extended to society as a whole. Society is not very lovely. I no longer feel a sense of duty to stand loyally by its side, while it continues to do despicable things in my name. Instead, I've reluctantly come around to the position of the economist Bryan Caplan, who recommends getting an amicable divorce. Caplan fulfilled his lifelong dream of living in a beautiful bubble around his 40th birthday. He is now surrounded by people he respects and admires. He never hears a commercial. He forgets about the existence of professional sports for months at a time. He still leaves the security of his bubble to walk the earth, but only as a tourist: “Like a truffle pig, I hunt for the best that “my” society has to offer. I partake. Then I go back to my Bubble and tell myself, “America’s a nice place to visit, but you wouldn’t want to live there.” I believe we have a responsibility to help improve the world outside our bubbles, and I'm sure Caplan would agree: he is a leading advocate for open borders, for example. But even if you feel strongly about reforming society, you still need a bubble as a base of operations for purely pragmatic reasons.
Warren Buffett urges us to be skeptical of nerdy-sounding priesthoods, and examine the assumptions behind their models. So, what are the assumptions underpinning FIRE? 1. The FIRE model works IF you have the intestinal fortitude to stay calm during a major market downturn 2. The FIRE model works IF you don’t have any ‘uncle points’ which might force you to sell at an inopportune moment 3. The FIRE model works IF market timing doesn’t matter for long-term investors 4. The FIRE model works IF historic returns are indicative of future returns
Market timing matters Sure, the past returns on index funds have been good, on average. Sure, they’re unlikely to go to zero, unless every productive business on Earth simultaneously melts into slag. Sure, there’s never been a 20-year period in which the stock market has lost money. But the standard advice—that timing doesn’t matter—is wrong. Or to put it another way, it’s right on average, but wrong specifically. The problem is that there is no such thing as an ‘average investor’. There’s just you, and me, and your auntie, and her neighbour, and a bunch of other individuals who care very much about what happens to their precious retirement fund. If your portfolio gets wiped out, it’s not that reassuring to know ‘the average investor’ is doing fine. A nifty online tool called FIREcalc hammers this point home. Let’s say you retired in the early 1970s, with a portfolio of $750,000, and planned to withdraw $35,000 of spending money each year. On average, you’ll do very handsomely indeed. But that average is dangerously misleading. In Fig. 4.5, we see what happens when three friends with identical portfolios retire in quick succession: Alice retires in 1973, Bob retires in 1974, and Carol retires in 1975. Figure 4.5. The effect of small variations in market timing on retirement outcomes. Bob does pretty well, and Carol does spectacularly well, but Alice’s portfolio blows up. It's amazing how even the smallest variation in timing creates dramatically different outcomes. Let’s make our example a little more conservative. If we stick to the 'safe' withdrawal rate of 4 per cent, that means we can spend $30,000 a year. In Fig. 4.6, we model how this portfolio would have performed across every time period since 1871. Figure 4.6. Outcomes of a retirement portfolio across a large sample of time periods. Each path on the graph represents a different outcome. The highest portfolio balance at the end of the period is $4.25 million, and the average is $1.4m. But once again, the average is dangerously misleading. Some of the paths fall below zero, and the worst outcome is a balance of -$300,000. In 5 per cent of the cycles tested, the ‘safe’ withdrawal rate was anything but. So: the assumption that market timing doesn’t matter is wrong. It matters a whole lot. There’s enormous variance in outcomes, purely based on luck. One obvious takeaway is that it’s important to diversify yourself across investing time windows. Unless you invest a big lump sum all at once, this happens naturally: you keep saving and investing a little more each year. If you do that for 20 years, you end up with 20 different investing windows, and 20 different lines on the graph. By spreading risk across time, we can become something much closer to the ‘average investor’. In other words, the buy-and-hold wisdom really shines during the accumulation phase. As long as you don’t hit any uncle points, you’re not eating into your capital during a downturn. And so long as you keep your nerve, you get to keep buying at bargain prices! But you can’t diversify your retirement window. It’s a one-off event. From the point you stop earning, you only get one line on the graph. Instead of accumulating through good times and bad, you’re burning capital through good times and bad. With a ‘safe’ withdrawal rate of 4 per cent, there’s something like a one-in-20 chance of going bust. And even that’s assuming the past has something to tell us about the future. Does it?
Take steps to minimise the chances of uncle points. That means insurance policies for income, health, and catastrophic events, so you don’t have to lock in a loss at an inopportune time. It also means forcing yourself to contemplate the end of a marriage, the unexpected patter of little feet, a serious disease or accident, and various other unthinkable scenarios that might cause a sudden change to your financial situation. 2. The only truly 'safe' strategy is to maintain diverse income streams, without relying on investment returns. Ideally, that means finding work you actively enjoy, and creating a life you don’t need to retire from. 3. Practicing frugality is the master strategy. To repeat an unflattering metaphor from earlier, frugal folks are hardy little cockroaches. Should a black swan spread its wings and blot out the sun, those who are attempting to FIRE may have to delay their plans or return to work—but they will be among the best-positioned to not only survive, but thrive.
EFFECTUATION Here’s how effectuation works: first, take stock of whatever resources you already have at your disposal. Next, choose a goal based on whichever of your current options is the most promising. In the course of pursuing that goal, you open up new options, and create space for serendipity to strike. And you zig-zag your way along in this manner, springboarding off whatever new opportunities present themselves. It sounds absurd to let your goals emerge from your actions and circumstances, instead of the other way around. But the great strength of effectuation is that it works well under conditions of uncertainty, whereas classic causal planning (from A →B → C) does not. As the leading effectuation expert Saras Sarasvathy puts it, the logic of causal reasoning is that to the extent that we can predict the future, we can control it. The logic of effectual reasoning is that to the extent that we can control the future, we don’t need to predict it.
WE'VE COME TO THE END of the book, which means it's time to contemplate the deep metaphysical questions: what is a 'book', anyway? You might describe it physically: it's made of paper, with squiggles and dots printed in ink, it's heavy, and so on. But after a while, you'd also describe what it's for. Hopefully by this point you'd say that the purpose is to be read and enjoyed, rather than, say, relegated to the outhouse as a handy source of paper. This is what Aristotle called Telos: the ultimate end, and reason for existence. Man-made objects have a telos, but so do all natural things. An acorn's telos is to grow into a mighty oak tree; a thoroughbred foal's purpose is to become a fast runner. This final book explores our own telos. To what end were human beings created? According to Aristotle, our reason for existence is to be happy, in the fullest sense of the word—what the Greeks called eudaimonia. Hedonic pleasure is not enough to reach a state of flourishing: we must also live a life of virtue, and use all of our capabilities to their fullest. To live without virtue is to fail to reach our true purpose—like a book that's only used as a doorstop, or a racehorse with a lame leg. This is an inspiring and noble ideal, and like most noble ideals, only somewhat spoiled by not having the slightest bit of grounding in reality. We can hardly blame Aristotle for pushing his pet theory a little too far. Humans and other natural things sure look like they were designed with some purpose in mind. It wasn't until that nerd Charles Darwin stuck his beak in that we learned the awful truth: evolution is an impersonal and frankly ridiculous process that involves no planning, forethought, or intention of any kind. While creationists still cling to Aristotle's teleological argument, they should be careful what they wish for. If we were 'designed' for anything, it's only the ignoble end of replicating our genes by any means necessary. We might call this the blind idiot god of evolution's telos: have sex with anything that isn't nailed down, and try not to die in the process. Now, this life philosophy works quite nicely up until your mid-20s. After that point, we start being confronted by some niggling questions: What's the meaning of life? What's it all about? This is supposed to be a great mystery, but the answer is staring us right in the face if we can only bear to look at it: there is none. Zilch. Zip. Nada. Nothing.
STATUS GAMES Finite players play within boundaries; infinite players play with boundaries. JAMES CARSE STATUS IS THE SHADOW CURRENCY that makes the world go around. Of all the currencies of life, the marketplace for social status is the biggest and most bustling. The games we play in pursuit of raw status are rarely as wholesome or legible as the strategies we use to build social capital. There are hidden micro-transactions in every instance of eye contact, an arm casually draped over a chair, the conjugation of a verb, a specific tone of voice, and every aesthetic choice from the clothes you wear to the car you drive. While status is necessarily nebulous, it's much less of an abstraction than money. This is the basic currency of social animals: it can be traded, saved, invested, loaned out, or crystallised. Unlike health or knowledge capital, status is liquid—it can be readily exchanged for sex, information, money, or other favours. But it has one terrible feature that sets it apart from all the other currencies of life. Unlike wealth, or health, or learning, status is purely positional. The size of the pie is fixed, and everyone's out to get a slice of
We can already see the first stages of this transition taking place. Why does wearing a chunky gold chain look rich to poor people, and poor to rich people? The signal is simple: "I have enough resources that I can waste $500 on this shiny metal ornament." But rich people are not worried about being confused with people who don't have $500. They have to distinguish themselves from the insecure middle classes, and the way they do so is through countersignalling: by refraining from obvious displays of wealth, they demonstrate that they're so secure in their position that they don't need to broadcast it.
By contrast, only the elite can get away with dressing like homeless people. Mark Zuckerberg's trademark hoodie is a countersignal that he's powerful enough to ignore even the most high-class social conventions, and doesn't have to worry about being confused with your typical scruffy kid. Bill Gates rocks a $70 Casio watch. Warren Buffett still lives in the same modest house he bought in the 1950s. These are the richest men in the world, and everyone knows it. Not competing on this axis only increases their prestige: they've got enough going on that they don't need to engage in such transparent attempts to gain status.
In ancient Rome, frugalitas was known as “the mother of all virtues”. When St Augustine wrote this line, he was riffing on Marcus Tullius Cicero, a prolific writer and orator who made the same observation in 45 BC. It was Cicero who first translated the Greek concept of frugality into Latin, and defined it as encompassing the virtues of courage, justice, and prudence: “Let us allow, then, frugality itself to be another and fourth virtue; for its peculiar property seems to be, to govern and appease all tendencies to too eager a desire after anything, to restrain lust, and to preserve a decent steadiness in everything.”