Zweig, Jason. Your Money and Your Braine
.pdfover, you ain't going to have nothing."
Just as we mistakenly think that being rich is as full of joy as becoming rich, so we incorrectly imagine that being paralyzed is as horrible as becoming paralyzed. When you picture the fate of a quadriplegic, you focus on the shock and terror of a catastrophic injury, the loss of your mobility and freedom, the end of your working life, the temptation to end it all. But after someone is paralyzed, a new routine replaces the old one. Typically, after a terrible period of denial, shock, anger, and depression, the trauma fades and the condition becomes bearable. You concentrate your energy and attention on making the best of your situation. For everything you knew you would never be able to do again, there is something you can do that you never would have anticipated.
Thus, although no one would ever volunteer to become paralyzed, being paralyzed turns out to be more bearable than most people—even experts in the field—can imagine. Out of more than 150 nurses, emergency medical technicians, and doctors at three trauma centers, only 18% thought they would be glad to be alive if they suffered a spinal-cord injury; just 17% felt their quality of life would be average or above-average after paralysis. But among patients who actually were paralyzed by spinal cord injuries, 92% said they were glad to be alive, and 86% felt their quality of life was average or better. Incredible as it may seem, in the second year after being injured, 1 out of 4 spinal-cord patients will already agree with the statement, "In most ways my life is close to my ideal." That's partly because they have begun to make the best of their situation, and partly because one of the greatest sources of happiness for anyone is the social support of family and friends—and these relationships can grow deeper when people are disabled.
Jack Hurst is an enthusiastic investor who manages his stock and mutual fund portfolio online even though amyotrophic lateral sclerosis (ALS, or Lou Gehrig's disease) has left him almost completely paralyzed. Hurst breathes through a ventilator, eats through a feeding tube, and needs his lungs suctioned dozens of times a day. In his entire body, the only area he can still move is a small part of the right side of his face; a device taped to his cheek converts the electrical activity in his facial muscles into signals that enable him to operate a laptop computer. I first met Hurst in November 2004, and we have kept up a lively e-mail correspondence ever since. (Using his facial muscles, Hurst can type up to ten words a minute.) He is one of the most contented and charismatic people I know; the twinkle in his eye is undimmed after two decades of paralysis. This man who cannot move can still count his blessings—and he does. "The general attitude and love demonstrated by my wife makes me happy," Hurst has e-mailed me. "The number of friends who help and support us enhances my happiness. I have always been an optimist, which prevents me from being negative. I don't have a lot of regrets, because I've always performed to the best of my abilities in whatever task I faced." Hurst has not been able to walk since 1988; nevertheless, he insists, "A person in my position doesn't have much to complain about."
Wouldn't It Be Nice?
Even though our predictions about our future emotions often turn out to be wrong, we are usually blind to our own blunders. "In our lives there are literally thousands of things happening over long periods of time," says psychologist Ed Diener of the University of Illinois, "so it is hard to sort out the mistakes we make in forecasting our own feelings."
"If only the Red Sox win the World Series," you tell yourself, "then my life will finally be complete." Then they do, and in a few days the glow is gone. "If I can just get this new job," you swear, "then I'll be able to stop and smell the roses." Then you get the job, and you end up more stressed out than ever. "If only she'll agree to marry me," you pray, "then I'll be happy every day for the rest of my life." Then she does, and you are not happy every day for the rest of your life, even if your marriage survives. Furthermore, when you prayed for her to marry you, you managed to forget that not long before, you had made a solemn vow—over your own broken heart—that you would never fall in love again.
When we imagine the future, we exaggerate both how intense our emotions will be and how long they will last. That leads to what Daniel Gilbert calls "miswanting," the desire for possessions or experiences that we think will make us happy in the future, but turn out not to. Unless you learn to conquer this illusion,
you are likely to waste your money buying things that seem to promise bountiful happiness but turn out to be little more than empty husks. The variety of ways in which humans mispredict their own future emotions is dazzling:
•College football fans were asked how happy they would be, and how long they would feel that way, if their favorite team won a big game. They predicted they would be elated for days but, forty-eight hours later, it was as if nothing had happened; many fans turned out to be happier even though their team lost.
•Asked whether they were hypothetically willing to accept $5 in return for performing a mime routine in public, many of those asked said yes. But when they were actually put in front of an audience and asked to do it, suddenly only half as many were willing to go through with it—even though they still could earn $5 just by imitating an elephant or a washing machine.
•At art and antique auctions, people regularly swear they will not bid above a certain price—but then, in the heat of the moment, find themselves the startled owners of something at two or three times the maximum price they "wanted" to pay. Even experienced CEOs suffer the same "buyer's remorse" or "winner's curse," often finding that the company they were thrilled to buy is nothing but a headache to run.
We base our goals upon what we believe to be our desires; in fact, one of the most basic principles of economics is that people know their own likes and dislikes. But we often find out that what we thought we wanted before we got it is no longer what we really want once we have it. Just as people adapt rapidly to drastic events like winning the lottery or becoming paralyzed, we get used to almost anything we are frequently exposed to. That's why the money we spend on big purchases gives us such a perishable pleasure. To put a twist on the Rolling Stones, you can't always want what you get.
Take that new SUV. When you first drive it off the dealer's lot, it glistens like a gigantic jewel and feels just as fast and safe and soft and roomy as you had dreamed. Becoming an owner is even better than you imagined. But being one turns out to be worse. In a couple of weeks the last trace of new-car smell is gone. In a month or two, the exterior is scarred with dings and scratches, while the interior is splattered with coffee, Gatorade, and goodness knows what else. It's hard to park, and every time you pull out of a gas station you leave at least $50 behind. With each passing day, the contrast between your vision of what ownership would be and the reality of what it has turned out to be will become more glaring. Therefore, while you might not quite be willing to renounce your new SUV, it will probably give you much less pleasure than you were sure you would get from it.
The same goes for your beautiful new suit or shoes (they will get stained or go out of style all too soon) or the kitchen you just remodeled (the countertop gets chipped, the floor tiles get scratched, and somehow the fridge still isn't big enough). Big capital expenditures can give us a great deal of pleasure when we imagine the results ahead of time. Unfortunately, the vision pales by comparison when it collides with reality. You are left weighing what you got against what you dreamed you would have, and the results feel flawed and dirty compared with your dreams.
Because those original dreams remain so vivid, you usually come to the wrong conclusion. Instead of realizing that big spending will probably never make you happy, you conclude that you simply spent your bundle on the wrong thing: "Next time, I'm getting a Lexus instead of this damn Acura." Then if the Lexus lets you down, you wish for a BMW, and so on—condemning yourself to an unending cycle of buildups and letdowns. If you spend like this, money might not only fail to make you happy, it could make you miserable. George Bernard Shaw was right when he wrote, "There are two tragedies in life. One is to lose your heart's desire. The other is to gain it."
How Was It for You?
If it seems strange that our predictions of what will make us happy are so unreliable, consider this: Our memories of what did make us happy are not much better. Because no one likes admitting a mistake, the
past often gets polished in our memories—making us feel it wasn't so bad after all. That, in turn, may make us more willing to repeat experiences that we did not always enjoy at the time.
•College students were equipped with handheld computers as they went on spring break. Seven times a day, the students filled out an electronic survey rating how intensely they were feeling joyful, calm, friendly, pleasant, or happy. On average, they ranked their emotions right smack in the middle, reflecting the reality that fun in the sun also comes with bug bites, sunburn, sand-filled bathing suits, and bad hangovers. A month after they got back, the students were asked to recall their emotions during the vacation. The feelings they now remembered were 24% more positive than they had been in real time.
•On a tour of California, bicyclists got plenty of exercise, fresh air, and dazzling views—just as they expected. They also got bored, soaked by rain, and exhausted by heat and distance. During the trip, 61% of the bicyclists said that at least one aspect of the trip was worse than they had expected. Only one month later, however, just 11% remembered feeling that way, as if the recent past were reflected in a rose-colored rearview mirror.
•The vacation in your photo album is more pleasant than the one you actually had, and that may skew your memory. After all, you had to put the camera down when your husband fell off the boat ride, there was nothing to photograph while you waited forever in 95-degree heat to use the restroom, and you certainly didn't memorialize the moment when your six-year-old threw up his French fries. Instead, you posed everybody, smiling, in front of Cinderella's castle.
•Tracked over time, dozens of people were asked how happy their childhood was. Looking back from around age 30, just 40% felt they had been "generally happy" as children. By their late 60s, however, 57% decided that their childhood had been mostly sunny. And when they reminisced in their 70s, 83% now felt they had been generally happy as children.
•Half the patients undergoing colonoscopy at a hospital in Toronto got a conventional procedure lasting about twenty-seven minutes. For the other half, the colonoscope instrument was left motionless in place (yes, that place) for up to three extra minutes at the end of the exam. In real time, both groups rated the procedure almost equally painful. But when they looked back on it later, the second group felt the exam had been considerably less painful. These patients had been in pain for longer, but because their final minutes involved a declining level of discomfort, they now had a more positive memory. How long a feeling lasts is less important than how it ends.
Your memories, then, are not just recollections. They are also reconstructions. That helps explain why you learn so scantily from your own experience. Your memory of what was is shaped largely by what is; as you become happier in the present, it seems that you must have been happier in the past. And as you forget what actually happened, it starts to seem more like what you originally expected to happen. Your vacation was supposed to have been fun, so maybe it really was. After you kick yourself for doing something stupid, it may occur to you that if it had really been such a dumb thing to do, you would not have done it in the first place. These tricks of memory reveal a valuable lesson: While your new SUV or your renovated kitchen tend to depreciate as you grow used to them, past experiences often become more positive as you look back at them. While the money you spend on acquisitions tends to feel more and more like a mistake as time passes, the money you spend on experiences is apt to grow in value as your memories grow warmer.
The Elusive Butterfly
We've seen that people are often wrong about what will make them happy in the future, or even what did make them happy in the past. But surely we must know what makes us happy in the present.
Unfortunately, it turns out that isn't really true, either.
• How satisfied married people say they are with their lives is determined largely by how happy they are
with their spouse—but only if you ask about married life before you ask how happy they are in general. Likewise, how happy college kids say they are is unrelated to how often they have been dating—if you ask them first about their overall happiness. If, instead, you first ask them about their social life and then about their happiness, you will get very different answers.
•Nearly 1,000 working women in Texas kept a detailed journal of one day in their lives, ranking sixteen common activities by how satisfying they were. It turned out that being with their children ranked near the bottom, barely ahead of surfing the Internet and slightly behind taking a nap. The only activity that made them less happy than being at work was commuting. They preferred praying to shopping, while socializing with friends made them much happier than relaxing alone. Yet, if someone asked what makes you most happy, you might think of achieving something at work, spending time with your kids, shopping, or just relaxing. It might not cross your mind that you could enjoy thinking about those things more than you enjoy doing them.
•Once a day for two weeks, college students who had recently begun dating rated how satisfied they were with their relationship in general, their sex life, and life overall. Then, at the end, these lovebirds were asked to look back and rate how they felt about their life and love over the preceding two weeks. When the researchers checked six months later to learn which romances had survived and which had broken up, they found that how happy people say they are each day is not a good way to forecast how long the relationship will last—but how happy people say they were is an excellent predictor of whether they will stay together.
Strange as it seems, thinking about the ups and downs of daily life as you go through them can make you feel less happy. Stranger still, the passage of time can smooth out the highs and lows, making you feel more satisfied with your life when you look back than you actually were while you were living it.
So Happy Together
Measuring happiness, it seems, can be like trying to trap a rainbow in a jar. Fortunately, a few findings hold water. How satisfied you are with your life depends, above all else, on how connected you feel to other people. Psychologists Ed Diener and Martin Seligman studied more than 200 people for months on end, administering numerous tests to determine who was genuinely happy. The happiest people were much more satisfied with the general state of their lives much more of the time. They seldom were sad for long when things went wrong, nor were they swept away by euphoria when things went right. Above all, happy people had more friends and spent less time alone.
Researchers had more than 100 folks wear wristwatches that beeped as a reminder to fill out a survey on happiness. Those who had scored high on a test for extroversion were happier than introverts. In fact, people who say they have more than five friends are nearly 50% more inclined to feel they are "very happy" than those who have fewer than five friends. Solitude produces so little happiness, on average, that most people would rather hang out with their boss than be alone.
We also know that when people are happy, the brain lights up with a special glow. Using brain scans and electrical recordings from the scalp, neuroscientist Richard Davidson of the University of Wisconsin has found that happier people have a lot more going on in the left prefrontal cortex. Neurons firing in the left side of the PFC help you recover from an upsetting event, focus on achieving a positive goal under trying circumstances, and suppress the negative emotions generated in the amygdala. People with a higher average level of activity in the left PFC get less upset by scary or gross movies. What's more, investors with stronger activation in this part of the brain have a better memory for how they earned their recent profits. It's almost as if this area is a source of internal sunshine for the mind: Autopsies have shown that people who suffered from chronic depression often have severe shrinkage of cells in the left PFC.
Some people may be born with better wiring in the left prefrontal cortex. Davidson studied ten-month-old babies as their mothers stepped out of the room for a minute. Comparing the infants who cried against those who didn't, he found that calm babies had much more activity on the left side of the PFC than
crybabies did. Fortunately, it seems that at least some people who are not born with better wiring in the left PFC might be able to develop it. Buddhist monks, who spend years practicing meditation to generate inner calm, seem to have remarkably high levels of activity in the left PFC that persist even when they are not meditating. Deliberately dispelling negative emotion seems to create positive emotion.
Knowing that money is a means, not an end in itself, is another key to satisfaction. People who place less priority on having more money tend to be happier than those who are more materialistic. Pursuing wealth for its own sake, says Diener, has "toxic effects" on happiness. People who believe that money is the most important thing in life are more likely to suffer mental health disorders (unless they are already rich).
Unfortunately, insecurity and uncertainty can bring out the inner materialist in almost anyone. Children who are raised with inconsistent rules or in a harsh or hostile atmosphere are more liable to grow up looking for money to provide psychic compensation. That sets up a vicious circle: Pursuing money as an end in itself can cause depression, anxiety, stress, and family tension, which in turn prompt a more urgent chase for more money in hopes of relief.
But you cannot slow down a treadmill by running faster. In a recent survey, working women estimated that people with annual incomes no greater than $20,000 are in a bad mood more than twice as often as those who make more than $100,000 a year. In fact, the low earners report being in a bad mood only a smidgen more often. After all, the more time you spend at a high-paying job chasing even more money in the pursuit of imaginary happiness, the less time you will have for the things that can add real happiness to your life.
Keeping Up with the Joneses
One reason it can be so hard for you to get off the treadmill is that your neighbors are pounding away on it, too. How good your money makes you feel depends partly on how much money the people around you have.
To envy is human. But humans are not the only creatures that care about how they rank against their peers. Many species form their own social ladders, with those on the bottom rungs kowtowing to those that are higher up. A dominant animal might have its fur groomed by others in the group, or the others might defer to its authority over food or choices of mates. Animals often show high levels of stress hormones in their blood when they are low on the totem pole in their own species. When a mouse is intimidated by a more powerful member of the group, its brain produces extra amounts of a protein that enhances memory, encouraging future "social defeat"—not just around an alpha mouse immediately, but around any of its peers for weeks to come. Rats that are low on their group's pecking order tend to lose their appetite, turn lethargic, and sleep fitfully, and their adrenal glands, which produce stress hormones, become enlarged. When their territory is dominated by another member of the same school, fish shut down production of a protein that enhances fertility; the less "real estate" they "own," the less likely they are to reproduce.
Trained by neurobiologist Michael Platt to use fruit juice as currency, monkeys pay up to view images of other monkeys that are higher in the pecking order. Conversely, they will spend units of fruit juice to avoid viewing pictures of monkeys lower on the social ladder. After as little as three months of socially dominating their neighbors, monkeys show a 20% increase in the volume of special molecules that sponge up dopamine; being high on the totem pole may actually beef up the reward system in the brain.
Our modern minds still retain these primitive responses to social status. When young men in Germany viewed photographs of automobiles, they strongly preferred pictures of flashy sports cars to either small cars or stodgy limousines. No surprise there. But when the men made their choices inside an MRI scanner, it turned out that just looking at the images of the hot sports cars fired up the reward centers in the reflexive brain. A mere glimpse of the kind of car that most people envy was enough to flood the viewer's brain with dopamine, in the same areas that light up when a man sees a picture of a beautiful woman's face. The craving called "car lust" is probably driven by an ancient, elemental desire to show off and move up the social ladder.
The roots of envy and social comparison run so deep that they are an instinctive part of our biological makeup. In a hunter-gatherer society, dominant individuals dominated precisely because they were better at getting and keeping scarce resources. Social comparison probably served early man well; by observing those who had more, our ancestors learned how to get more themselves. For example, envying—then imitating—the group member who was best at gathering fruit would have helped the others learn how to gather more, too. In a primeval world, envy helped everyone survive.
Having it ingrained in our modern genes, however, is a mixed blessing. For most people in today's Westernized societies, life is no longer a struggle to fend off starvation. Failing to imitate your successful peers will not normally condemn you to a childless life or early death. Suffering a mild case of the "comparison complex" can be beneficial; it motivates you to work hard, gives you hope for the future, keeps you from being a total miser, and prompts you to clean up the house before visitors arrive.
There is a good reason, however, that the Ten Commandments close with a thundering inventory of all the things that "Thou shalt not covet." While a secret pinch of envy is a positive motivator, a chronic comparison complex can ruin your life. If you cannot control the ancient urge to measure your success against that of your peers, your happiness will always depend less on how much money you have than on how much money they have. And that's something you will never have any control over. Always wanting more, in order to keep up with whoever has more, makes millions of people perennially unhappy.
Even if you think you don't care about "keeping up with the Joneses," you may suffer from a comparison complex without realizing it. Imagine two situations: In one, you buy the biggest house in a middle-class neighborhood; in the other, you buy the smallest house in a rich part of town. In both cases, you earn an upper-middle-class income and pay the same price for each house. Which neighborhood will you be happier in?
Financially, the house in the wealthy enclave might turn out to be a better investment. Psychologically, however, you are much more apt to be happy in the middle-class area, where your house will not seem smaller with every passing year and where your neighbors will not constantly outspend you. A study of more than 7,000 people in over 300 towns and cities found that, on average, the more money the richest person in your community makes, and the greater the number of neighbors who earn more than you, the less satisfied you will probably feel with your life.
Thousands of people in Switzerland were asked how much income they felt would be enough to meet all their needs. Over time, the survey showed that for every 10% increase in their income, people wished they earned still another 4% more. The more you have, the more you want more than you have.
Almost 5,200 British workers were asked to rate how happy they felt about their jobs and income. The less the typical person earned relative to those with similar jobs, the less happy he felt about his own work and wages—even if he was rich. In other words, someone earning a few farthings more than the typical pittance for his job may well be happier than someone earning a fortune in a field where his competitors make even more.
That appears to be why many people in poor countries are happier than an American or European might expect. When nearly everyone you know is about as poor as you, you are less likely to suffer from a comparison complex. So the Maasai and Inuit, who live largely without electricity or televisions, among other things, very seldom worry about how much richer someone else might be in Nairobi or Nanortalik—let alone Beverly Hills, Dallas, or Zurich.
How happy your money makes you even depends on how you stack up against your own family. The journalist H. L. Mencken once quipped that wealth is "any income that is at least $100 more a year than the income of one's wife's sister's husband," and economists have recently shown that he was right: Women are much more satisfied with their household income when their husbands earn more than their
sisters' husbands. Furthermore, people who earn less than their parents did, even if they themselves are rich, are considerably less likely to feel "very happy" than those who make more money than their parents did.
Comparing your own wealth to that of your friends can also hurt. A survey done for Money magazine in 2002 found that 63% of affluent Americans agreed with the statement "It's harder for me to be friends with people who have a lot more money than I do"—triple the proportion who felt that it is harder to have friends who are less well off. That's yet another reason that the race for riches can leave you feeling poorer. Your newfound wealth may cut you off from your old friends. Since an active social life is one of the keys to happiness, ending up richer but lonelier is no way to live a more rewarding life.
Can Happiness Buy Money?
"What good is happiness?" someone once quipped. "You can't buy money with it." It's a clever remark, but it probably isn't true. People who are in a good mood are more inclined to try learning new skills, to see things in a broader context, to think of creative solutions to problems, to work well with other people, and to persist instead of giving up. If you were writing a recipe for how to make more money, those are among the first ingredients you would include. Happen and happiness come from the same Old English root word, and happy people seem to make good things happen more often.
Neuroscientist Richard Davidson has found that people with greater activity in the left prefrontal cortex—one of the main areas where the brain seems to generate happiness—produce more antibodies after a flu shot, suggesting that their immune systems are stronger. In both humans and monkeys, greater activity in this part of the brain is associated with lower levels of stress hormones in the blood, helping prevent us from overreacting to the ups and downs of daily life. Happier women start the day with lower levels of stress hormones in their bodies—and their levels stay lower throughout the day. Among nearly 1,000 elderly Dutch men and women, those who laughed more often, looked forward to the future, and strove to fulfill their goals incurred a 29% lower risk of mortality than those who were less optimistic. Being extroverted is also good for your health; people who are more outgoing have lower levels of glycosylated hemoglobin in their blood, indicating that they are at lower risk for diabetes and related diseases.
In 1976, thousands of college freshmen rated how cheerful they were. Almost twenty years later, those who had ranked at the top for good cheer were earning an average income 31% higher than those with bottom scores. Happier professional cricket players have higher batting averages than gloomier players, and employees who are more consistently in a good mood miss fewer days at work—even in Russia. A study of nearly 300 workers at three U.S. companies found that the happier they were, the higher their salaries were eighteen months later. CEOs who are more cheerful are more likely to have more productive workers who generate higher profits. And day traders who stay in a good mood regardless of whether they made or lost money tend to earn higher returns over time.
It's very simple: The happier you are, the longer and healthier your life will probably be—and the more money you are likely to have.
Getting Lucky
On a lovely morning in May 1994, Barnett Helzberg Jr. was walking past the Plaza Hotel in New York City when he heard someone yell, "Mr. Buffett!" Helzberg turned and saw a woman in a red dress talking to a man he recognized as Warren Buffett. Recalls Helzberg: "I walked up to him and said, 'I'm Barnett Helzberg of Helzberg Diamonds in Kansas City. I'm a shareholder in Berkshire Hathaway, I really enjoy your annual meetings, and I believe that my company fits your criteria for investments.'"
Within weeks, Buffett had bought the company from Helzberg and his family for an undisclosed price. "My luck is uncanny," says Helzberg. "The more you believe that you're lucky, the luckier you are."
As Helzberg's story shows, luck is more than just being in the right place at the right time. Luck is making the most of being in the right place at the right time. In 1970, U.S. Navy Lieutenant Robert U. Woodward delivered a package to the office of the chief of naval operations. No one was there to sign for it, so the lieutenant had to sit and wait. Soon, an older man came into the waiting area and sat down silently. The lieutenant forced himself to make eye contact, introduced himself, and was soon chattering away to the stranger about the worries of a young naval officer who did not know what to do with the rest of his life.
It turned out that both the lieutenant and the stranger had taken graduate classes at George Washington University—and with that in common, they hit it off. The older man, whose name was Mark Felt, volunteered some career advice, and the two stayed in touch. Before long, Bob Woodward was out of the Navy and working as a reporter at the Washington Post, and Felt was a top official at the Federal Bureau of Investigation. Felt later became Woodward and Carl Bernstein's confidential source "Deep Throat."
Woodward had no idea who Felt was before they shook hands, nor any inkling that he himself would become an investigative journalist. If Woodward had sat there in the typical awkward silence of people in waiting rooms, he and Bernstein might never have been able to expose the full story of the Watergate scandal. By converting a stranger into a friend, Woodward ended up changing American history.
British psychologist Richard Wiseman has studied hundreds of folks who describe themselves as very lucky or unlucky. He found that some are indeed luckier than others—and that being lucky is a kind of skill. Wiseman identified several characteristics that lucky people tend to have in common and that help bring them good fortune.
THEY DON'T GIVE UP. "Unlucky people collapse under bad luck," says Wiseman. "Lucky people treat bad luck as a learning experience." One painstaking trial at a time, Thomas Edison tested thousands of materials, including boxwood and bamboo, as potential filaments for his "incandescent lamp." (When he said that genius is 1% inspiration and 99% perspiration, he knew firsthand what he was talking about.) Finally, Edison discovered that carbonized cotton thread would do the trick. If he had been a quitter, there would be no lightbulb switching on over your head when you get a good idea.
THEY LOOK OUTWARD. Lucky people are curious and observant, eager to engage and explore the world around them. In 1946, Percy Spencer, an engineer at Raytheon Corp., walked into a lab where magnetrons, the power tubes at the heart of shortwave radar, were being tested. After a few moments, he had the odd sensation that the candy bar he had in his pocket was melting. Sure enough, it had become a little bag of chocolate-and-peanut soup. Spencer wasn't the first engineer this had happened to, but he was the first one who did anything about it—even though he had had only a grammar-school education. Spencer promptly got a bag of popcorn and put it in front of the magnetron; after that, he got an egg. Both soon exploded. By seizing on serendipity, Spencer had invented the "radar range," which later became known as the microwave oven. If you focus too narrowly on the task at hand, you may never use your peripheral vision—and thus miss out on what the sociologist Robert K. Merton called "the importance of letting accidents happen," or "structured uncertainty."
Fund manager Bill Miller of Legg Mason Value Trust forces his mind open in much the same way; he built his superb investing record by straying far afield to buy stocks like America Online and Dell Computer that more conventional "value" investors wouldn't touch. A couple of decades earlier, Peter Lynch of the Fidelity Magellan Fund got investing ideas from everywhere, including his wife's new pantyhose; he had no qualms about buying assets other stock-pickers never looked at, like Swedish auto companies or long-term Treasury bonds. Intelligent investors do not just tunnel in one place with blinders on; they open their eyes to everything and throw themselves in serendipity's path whenever possible.
THEY LOOK ON THE BRIGHT SIDE. Picture two cars, each occupied by only the driver, colliding head-on at high speed. Both cars are totaled. Both drivers walk away without a scratch. The unlucky one wails, "Oh God, look at my car!" The lucky one exclaims, "Thank God I'm alive!" One sees only what went wrong; the other, what went right. Both are holding the same glass, but the one who
considers himself lucky sees it as half full, while the one who thinks he is unlucky is convinced it is half empty.
Now imagine what happens next. The driver who feels lucky is so happy to be alive that he shrugs off any setbacks for the rest of the day. He tells everyone that simply surviving is a miracle. Other people are infected by his enthusiasm and congratulate him on his good fortune; their approval makes him feel even luckier.
The driver who considers himself unlucky fixates on anything else that goes wrong, no matter how minor, as yet another sign that the universe is against him. Picking up on his negativity, waitresses dawdle, security guards ask for several forms of ID, checkout clerks don't even tell him to "have a good one." By the end of the day, he is sure that he is cursed.
Which driver will be a bigger success in life? The question answers itself. Starting from the same point, these two people have driven themselves in opposite directions on the road of luck. As Louis Pasteur said, chance favors the prepared mind.
The Time of Your Life
Would you rather get $10 today, or $11 tomorrow? If you are like most people, you would rather get $10 today than wait twenty-four hours for an extra dollar.
Next, consider this: Would you rather get $10 a year from now, or $11 in exactly a year and a day? When the question is phrased this way, most people change their answer to $11, even though the two rewards are still separated by an identical twenty-four-hour delay. Somehow, it just seems easier to be patient in the future than in the present.
As this thought exercise shows, your investing brain often gets tangled when you make decisions that unfold over time. Even our proverbs about time are a mess of contradiction. A bird in the hand is worth two in the bush, but don't count your chickens before they are hatched; the early bird catches the worm, but slow and steady wins the race; he who hesitates is lost, but all good things come to those who wait; devil take the hindmost, but fools rush in where angels fear to tread. We are literally of two minds when it comes to time. On the one hand, we are impetuous and impatient, obsessed with the short term, eager to spend now and get rich quick. On the other, we are capable of setting money aside for goals that may be decades away, like our children's college tuition or our own retirement.
Neuroscientist Jonathan Cohen of Princeton University invokes Aesop's fable about the ant and the grasshopper, in which the ant busily gathers up food for the winter, while the grasshopper basks in the sun and mocks the ant for working on one of the best days of the summer. Aesop's grasshopper lives for today; the ant plans for tomorrow. Each of us has a grasshopper and an ant battling within our brains for dominance over our decisions about time. These are the same two systems—the emotional grasshopper symbolizing the reflexive brain, the analytical ant representing the reflective brain—that we learned about in Chapter Two. You cannot be a successful investor or a completely happy person, unless you can control the impulsive power of your inner grasshopper.
The itch to spend, borrow, and trade as soon as possible originates in the emotional circuits of the reflexive brain that we share with most other animals. Experiments on many species of birds and rodents have shown that they will generally not take extra risk to increase the amount of food or other rewards they can get—but they usually are willing to take a bigger risk if it might shorten the time they have to wait for a reward. In a state of nature, it often pays to be impatient. Millions of years ago, when life was short, food was perishable, and territory was difficult to defend, it made sense to live for today.
Getting rich quick fills us with a special thrill because it is the modern version of an impulse that kept our ancestors alive. Today, however, we also have the luxury of living for tomorrow. The focus on the long term is generated in the analytical centers of the reflective brain that are unique to humans. Other animals
can also plan ahead, and all creatures have to estimate the tradeoff between how large a reward may be and how long they might have to wait for it. But no other species is capable of laying such complex plans that reach so deep into the distant future. However, we don't always get the planning right. One way or another, time trips up almost everyone:
•When Americans leave their jobs, they can "roll over" their 401(k) into another retirement savings account or pay a tax penalty and get immediate access to the cash. Fewer than half choose the rollover into future savings; instead, 12% spend it on consumer goods and everyday expenses, while another 22% use it to buy a house, start a business, or pay down debt. For many people, the temptation to spend now overwhelms the resolve to save for later.
•Investors would much rather buy a mutual fund that charges an extra 0.75% in expenses every year than one that carries a one-time, 5.75% sales charge up front—even though they would earn higher returns the other way around.
•Thousands of credit card companies compete furiously for business. Why, then, do the interest rates they charge never drop much below 20%? Roughly one out of every two credit-card users think they "nearly always pay in full"—yet three out of four accounts incur monthly interest charges! Applying for a card in the here and now, people aren't bothered by a high interest rate, because they don't think they will ever go into debt; in the future, they almost always do.
•If you begin taking Social Security at age 62, your monthly benefits will be only 75% of what you could earn by waiting a few more years. And yet roughly 70% of recent retirees have chosen to start taking their Social Security payments before the full retirement age of 65. Their impatience gets them some money sooner—at the cost of missing out on a much larger stream of income later.
•Most people who join a gym pay for it up front, monthly or annually, as a way to force themselves to use it. They typically go so infrequently that they could save money by paying per visit—but are afraid to change their payment plan, lest they stop going to the gym entirely.
•To encourage military personnel to retire early, in the early 1990s the Pentagon began offering buyouts. Officers and soldiers could choose between an upfront lump-sum cash payment or a long-term annuity (a stream of monthly checks guaranteed for many years into the future). Over 90% of enlisted personnel took the lump sum, choosing more money up front—but missing out on an average of $33,000 in foregone benefits down the road.
•Offered a single, 50% chance of either winning $20 or losing $10, two out of three customers in a coffee shop in Westwood, Los Angeles, were willing to take the gamble. Given the chance to play the same bet 100 times, only 43% would take it; the near certainty of greater gains in the future was not vivid enough to counteract the pain of possible losses in the present.
A research team led by Jonathan Cohen of Princeton recently explored how the ant and the grasshopper wage their war over time inside your head. The researchers offered people a series of choices between two gift certificates at Amazon.com. One was for a smaller amount sooner; the other, for a larger amount later. (A typical choice was between getting a gift certificate worth $20.28 today or waiting a month to get one worth $23.32.) What Cohen's team found was simple but stunning: Reflective areas of your prefrontal and parietal cortex will be activated regardless of whether you go for immediate or delayed gratification. But your reflexive brain will kick in only when you pick the earlier reward—setting off a fiery surge of activity around the nucleus accumbens and nearby areas. Thus, choosing an immediate gain gives you a jolt of dopamine that you cannot get from choosing a delayed reward—unless the future profit is much larger. "It takes a really juicy future reward," says Cohen, "to get this system as excited as it is about an early or immediate reward."
That helps explain why most people prefer $10 today over $11 tomorrow but would rather wait for the