Tuesday, January 8, 2013

I've made a huge mistake

Here is another idea on a New Year's Resolution: Find a better balance between the "I should haves" and the "I should not haves". They are generally tradeoffs against each other where any minimization of one implies an increase in the other, but innovations can allow for new possibility sets where the minimums of both are lower. Think of this as greater efficiency. An example would be finding a new destination for a vacation to replace an old standard.

Think of it in terms of cruise ships. If you find a better cruise ship line, you might find that all choices aboard have better outcomes. For example, staying in your cabin for the day is more pleasant because the room is nicer than on the previous ship, but venturing out to take in activities is also an improvement over the previous ship's alternatives. Even if your relative costs are higher because everything aboard is so fabulous that the alternatives on the ship have high absolute differences (restaurant A might be a big let down compared to restaurant B), the effect still holds because the overall possibilities are better than what they were before (restaurant A is better, the same, or just slightly worse than the best restaurant on the prior ship while nearly everything else on the new ship is much better). Of course, it might take an initial risk of an "I should not have" to deviate from the original, known cruise ship, but that is the point of the resolution--taking desirable chances.

So my recommendation is two-fold:

  • Evaluate your life to see if you need less "I should haves" or less "I should not haves";
  • Appreciate and expose yourself to the opportunity to reduce both.

This is what Tim Harford is getting at in his resolution.

PS. Some of you probably recognize the more scientific form of what I describe above. Namely, the tradeoff between Type I and Type II errors and how a technological change can allow both to decline simultaneously.  Good for you, you get extra credit to apply toward the final exam.