Understanding When to Let Go: Insights on Decision-Making
Written on
Chapter 1: Economic Insights and Personal Heuristics
In the years 2022 and 2023, I closely monitored the shifting economic landscape. As the government aggressively raised interest rates to combat inflation, many anticipated an impending recession. Yet, as time went on, the economic data continued to perplex observers, revealing a resilient economy.
In June 2023, I tuned into an interview featuring the esteemed Stanley Druckenmiller, conducted by Bloomberg's Sonali Basak. Druckenmiller, a stock trader with a remarkable track record under the mentorship of George Soros, boasts an impressive average annual return of 30% and has never recorded a losing year. When he speaks, those in the trading world pay attention.
Druckenmiller has long forecasted a significant economic downturn. During the interview, he discussed the shifting perceptions of a recession:
Sonali: "We haven't seen it yet, and others are now predicting a soft landing. If you still believe a hard landing is on the horizon, what does that look like?"
Druckenmiller: "Many have adjusted their forecasts from a hard landing to a soft landing or even to no landing at all. My perspective remains unchanged. The absence of a downturn doesn't diminish the likelihood of its severity if it does occur."
He illustrated our natural tendency to believe that an event is less likely as time passes, a phenomenon that psychologists and economists refer to as a "heuristic." This is a concept I've been endeavoring to formally define for some time.
Chapter 1.1: The Nature of Heuristics
Heuristics are mental shortcuts that people use to make swift decisions, although these shortcuts can sometimes lead to irrational or flawed conclusions. Daniel Kahneman's acclaimed book, "Thinking, Fast and Slow," delves into various heuristics. One notable example is the "availability heuristic," which suggests that individuals will assume an event is more frequent if they can easily recall instances of it. This explains why we perceive politicians as more prone to infidelity compared to less visible professions like academia.
Returning to the heuristic discussed in this article, I will refer to it as the "declining-probability heuristic." This bias leads us to assume that the likelihood of an anticipated event diminishes over time, despite the fact that, if the event is bound to happen eventually, its probability actually increases as we await its arrival.
For instance, I recently waited for a technician to repair my internet connection. Scheduled for 1 PM, I found myself questioning whether to call for an update as the clock struck 1:05. I realized that if they were indeed en route, each minute that passed made it more likely they would arrive just as I dialed. Yet, paradoxically, it felt increasingly improbable that they would show up at all.
A few weeks prior, I accompanied my father to the movies. We parked on the fourth floor of a garage and waited for an elevator that didn’t indicate its current floor until it arrived. After a brief wait, my dad suggested taking the stairs. Reflecting on the declining-probability heuristic, I said, "Hold on." Within seconds, the elevator doors opened. I shared his frustration; it felt like we were wasting time, but this sentiment was misleading. If an event is highly probable, each passing moment does not decrease its likelihood; rather, it enhances it.
Chapter 1.2: The Cost of Misjudgment
It’s no surprise that we often fall prey to this misleading heuristic in our daily lives. If we never chose to abandon a futile endeavor, we would squander significant time and resources. However, this heuristic can also erode our determination. It serves as the mechanism through which we lose faith in our pursuits.
From Opportunity to Regret: The Gold Rush Parable
Napoleon Hill's "Think and Grow Rich" presents a memorable example: During the gold rush, two men discovered a promising vein of gold and invested in mining equipment. After extracting an initial batch of ore, they found the vein dwindling and eventually sold their equipment for a fraction of its value. The new owner, consulting an engineer, learned that they had stopped just three feet short of a rich vein. The new proprietor struck it rich, highlighting the peril of giving up prematurely.
For a more dramatic illustration, consider medical professionals who employ resuscitation techniques on patients who appear clinically dead. In real-life scenarios, doctors persist in their efforts for extended periods, believing the likelihood of success diminishes as time goes on. Yet, in truth, their chances of reviving the patient might actually be increasing with each passing moment.
Conclusion: Embracing Optimism
In summary, the declining-probability heuristic is a cognitive bias that, while useful for efficient decision-making, can also lead to despair. As time progresses, our confidence may falter, even when the chances of success are actually improving. By critically evaluating our expectations and recognizing the commonality of certain outcomes, we can combat the instinct to perceive diminishing probabilities over time. It is crucial to remember that we might be closer to our goals than we believe, even as we face setbacks.
If you found this article insightful, you might appreciate exploring "Is Having Children Unethical?" for further reflection.
A reflective look on recognizing when to give up, part of the #FindingJoy series.
An exploration of whether it's time to let go or keep pushing forward in your endeavors.