“Nothing In Life Is As Important As You Think It Is, While You Are Thinking About It”

by stillinnewyork

I like Daniel Kahneman’s take on the question “What scientific concept would improve everybody’s cognitive toolkit?”. He talks about the focusing illusion, where humans overweight the importance and impact of an event, relative to its likely impact (in the grand scheme of life). This ties in with the near-far effects that Robin Hanson has written about.

Evolutionarily speaking, I can see how the illusion has been useful. Suppose there are 2 groups of humans. The first can rationally value having a million dollars at its ‘fair value’. The second group overestimates the utility. You would expect that the second group would thus be more ‘motivated’ on average to achieve this goal. Obviously some will fail trying, and the ones who succeed will realise they get less utility than they thought. But this is enough to confer an evolutionary advantage on group 2. Gene propagated!

Relatedly, we see politicians exploiting this human tendency in the latest elections in Singapore. MM Lee’s dire warning that Singapore would fail if the opposition gained power, WP’s clarion call for a ‘first world parliament’, numerous cries against the hefty pay of ministers. These matters are important, but politicians exaggerate their consequence to serve their own cause.

Not surprisingly, we see the same characteristics in the financial markets – the death of the US dollar, the demise of the euro, the inexorable rise of China and BRICs, etc. Fertile hunting grounds for the rational investor with long term capital.

“Nothing In Life Is As Important As You Think It Is, While You Are Thinking About It”

Education is an important determinant of income — one of the most important — but it is less important than most people think. If everyone had the same education, the inequality of income would be reduced by less than 10%. When you focus on education you neglect the myriad other factors that determine income. The differences of income among people who have the same education are huge.

Income is an important determinant of people’s satisfaction with their lives, but it is far less important than most people think. If everyone had the same income, the differences among people in life satisfaction would be reduced by less than 5%.

Income is even less important as a determinant of emotional happiness. Winning the lottery is a happy event, but the elation does not last. On average, individuals with high income are in a better mood than people with lower income, but the difference is about 1/3 as large as most people expect. When you think of rich and poor people, your thoughts are inevitably focused on circumstances in which their income is important. But happiness depends on other factors more than it depends on income.

Paraplegics are often unhappy, but they are not unhappy all the time because they spend most of the time experiencing and thinking about other things than their disability. When we think of what it is like to be a paraplegic, or blind, or a lottery winner, or a resident of California we focus on the distinctive aspects of each of these conditions. The mismatch in the allocation of attention between thinking about a life condition and actually living it is the cause of the focusing illusion.

Marketers exploit the focusing illusion. When people are induced to believe that they “must have” a good, they greatly exaggerate the difference that the good will make to the quality of their life. The focusing illusion is greater for some goods than for others, depending on the extent to which the goods attract continued attention over time. The focusing illusion is likely to be more significant for leather car seats than for books on tape.

Politicians are almost as good as marketers in causing people to exaggerate the importance of issues on which their attention is focused. People can be made to believe that school uniforms will significantly improve educational outcomes, or that health care reform will hugely change the quality of life in the United States — either for the better or for the worse. Health care reform will make a difference, but the difference will be smaller than it appears when you focus on it.


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