by Richard Robb
That’s because the entrepreneur has been galvanized by a one-time opportunity. Its essential appeal is unique so it can’t be compared to opportunities that have come before, at least as far as the entrepreneur is concerned. It stands for itself. This murky realm is where the money is made, so limits to the transmission of belief is a key neglected topic in finance.
The for-itself dimension of belief also explains why people go to so much trouble to form their own opinions. Why not simply adopt the views of an expert? The expert might be incompetent, but at least she’s gone through a vetting process and, odds are, knows more than you. Still, we resist experts who tell us what we’re supposed to believe. Defying them is a for-itself act of will. When expert opinion conflicts with our core beliefs, the for-itself response is to discredit the expert, shop for maverick experts, and either hang on to preexisting beliefs for as long as possible or adjust them as little as possible.
The middle for-itself branch, people, analyzes social relations. Without a doubt, many of our social dealings belong to the realm of purposeful choice. Performing favors in anticipation of receiving reciprocal favors down the road can help us get ahead. Or we may care so deeply about other people that their well-being enters into our own preferences and becomes part of what we maximize. Most Sundays before my wife wakes up, I go to a bakery around the corner to buy her a blueberry scone. She values the scone. I don’t mind a short errand that gets me out of the house and I care about her well-being, so buying the scone optimally improves my well-being. If it’s cold or rainy or I’m particularly busy, the cost to me of buying the scone is greater than the benefit, so I rationally skip it.
Yet there are situations that draw us into the unpredictable realm of spur-of-the-moment good deeds. I often see riders on the subway train hold the doors so strangers can scramble on. Not only does this break the Metropolitan Transportation Authority’s rules, it strikes me as antisocial. The calculus just doesn’t add up: holding the door saves one stranger the five-minute wait for the next train, but delays three hundred other passengers by ten seconds, increasing the total waiting time by forty-five minutes. If the door holder’s aim is to benefit humankind, he should let the doors close.
That’s what I’d always think during my ten seconds of extra waiting. For years, I considered this behavior irrational. Perhaps the door holder wanted to maximize social welfare but suffered from a cognitive bias that attributed too much importance to salient information that had captured his attention—the one stranger about to miss the train. Or perhaps he was too confused by the calculations to reason properly. But maybe the confusion was mine—I was trying to fit a for-itself act into the purposeful model. My preference for letting the doors close is the result of a calculation, while holding them open is an act of mercy that transcends calculations.
But even with this more nuanced understanding, I still let the doors slam shut. I adhere to an ethical principle—promotion of the common good—unless I have a personal connection to whomever is about to miss the train. If the cost and benefit were approximately equal, I’d be inclined to favor the single person over the abstract calculation, but a forty-five-minute social cost for one person’s five-minute benefit is just too lopsided. Still, I can’t really object to the door holder’s defense: in a wholly spontaneous gesture, he reacted to a need as it arose.
The way we act on the world as we move through it will be treated more broadly with the final branch, time. Often activity that unspools over time is best understood in terms of flow, as a for-itself process of continuous choosing.
In order to explain our actions, we infer a beginning, an end, and a causal link between them. This abstraction makes it easy to freeze each moment in conscious thought, but is it an accurate characterization of life? Kierkegaard observes that we cannot continually keep ourselves “on the spear tip of the moment.” Rather, he asks us to “imagine a captain of a ship the moment a shift of direction must be made; then he may be able to say: I can do either this or that. But if he is not a mediocre captain he will also be aware that during all this the ship is ploughing ahead with its ordinary velocity.”1 Simply put, time never stops so that we may evaluate alternative bundles, pick what’s best, and then experience the consequences once time restarts. Purposeful choice requires that we ignore the flux and interpret action in terms of static categories. The for-itself perspective will provide us with an alternative picture of time and the way action unfolds.
From the for-itself perspective, rather than maximizing some measure of present and future well-being, we choose the obstacles that we then struggle to overcome. The chase takes on a life of its own. The importance of the chase explains the impulse to become a professional basketball player or a rock star and to persevere even as evidence mounts that the chance of success is approaching zero. Likewise, a student might complete a degree even after deciding to quit the field; she wants to finish what she started. (A rational choice economist could argue that finishing the degree raises her income because it signals grit. But the benefit of that signal is unlikely to outweigh the cost of a year of her life plus tuition.) These projects make sense only if we accept that an activity can matter beyond its ostensible purpose. A quest is about fighting over time and, when necessary, against the odds.
These battles don’t have to be major undertakings. They can instead be relatively minor, or even pointless. A cook prepares a meal according to a difficult recipe even though the subtleties are likely to go unnoticed, and a tenured professor diligently improves a class after it’s oversubscribed. Some of my students pull all-nighters before exams in hopes of improving their grade from an A− to an A. Even after they’ve secured the job they want and the baseline GPA to graduate, these students lose none of their zeal for obtaining the highest grade. They are like athletes, and this is their sport. Wearing themselves out studying, the students feel that the challenge of the exam and celebration of a victory if they win are all part of their process.
In the case of important challenges, success is often followed by a different kind of test—finding a new, equally meaningful quest. For example, what to do after you have enough money and your one and only skill is making more? Perhaps you turn to conspicuous consumption and start accumulating the status symbols that you mocked not long ago. This new pursuit might feel a bit hollow—after all, you chose it because you didn’t know what else to do. Then you’ll have to try something that feels more natural to you: maybe philanthropy or resetting your sights on overtaking your enemies who are more successful still.
The Significance of Authenticity
In the morning, I generally desire a cup of coffee. The quality can differ in all sorts of ways, satisfying my desires to a greater or lesser degree. I could assign a price to the small differences if I thought about it. But there is no sense in which I desire this particular cup of coffee; I just care about how hot it is, what it tastes like, what it costs, and so on. All potential cups are substitutes for other cups.
In purposeful choice, our aims are commensurable—one can be traded for another at some rate of exchange. This is not the case when acting for-itself. I might take on this challenge or commit to that eccentric belief for reasons I can’t fully explain. I’m not optimizing when I spend ninety minutes on a Sunday emailing with a student to clear up a misunderstanding on a minor point in the lecture notes—I have many students and they have many misunderstandings. I’m not going to pretend that I break my back attending to all of them. I could spend that time more profitably and help more students by organizing a group review session. Why bother with this one?
While I can’t give a precise answer, it matters that this exchange arises naturally: a current student is genuinely grappling with this week’s material. It feels like he wants to understand, not to cozy up to me for a letter of recommendation or a better grade. Before the email arrived, I did not think to myself, “I hope a student emails me seeking assistance.” But when it does arrive, there’s a chance I’ll take the bait.
A for-itself challenge can be relatively trivial or objectively important. No matter the magnitude of the challenge, it must come about organically to be experienced as authentic. A government program that paid people to dig holes and then fill them up again would be unpopular not only with taxpayers but also with diggers, since they’d know it was contrived to keep them busy.
Context is critical to for-itself action because this realm deals with unique events. This is the polar opposite of purposeful choice, which values options according to their various attributes and how well those attributes satisfy a person’s fixed desires. In fact, economist Gary Becker counted stable preferences among the three key axioms of neoclassical economics (along with optimizing behavior and markets in equilibrium).2 If our tastes bounced around randomly, rational choice theory would lack its predictive power. Of course, we may prefer a cold drink in the summer and a hot one in the winter. We may prefer variety; after an orange is chosen over an apple five times, oranges yield diminishing marginal utility and we switch to apples. Viewed at a sufficiently general level, these choices reflect coherent, stable preferences.
An ostensible paradox formulated by behavioral economist Richard Thaler has a simple resolution if we consider the importance of authenticity. Thaler points out the inconsistency of a man refusing to hire somebody to mow his lawn for eight dollars but then turning down the opportunity to mow a neighbor’s similarly sized lawn for twenty dollars. Thaler attributes this paradox to cognitive bias.3 Rational choice economists might point to different reasons for this behavior: if the man hired himself out as a mower, he could suffer diminished status among his neighbors or incur transaction costs in negotiating the terms of the job, as well as additional income tax. If he hired a mower, coordinating and monitoring would impose additional costs. But this is unconvincing: people would mow their own grass but not their neighbor’s for pay, even if they could work in disguise to uphold their status, income taxes were eliminated, and quality was easy to monitor.
This paradox arises in a strict purposeful choice framework, with agents evaluating work according to factors like pay and pleasantness of the task, while ignoring authenticity. For-itself theory provides a simple explanation: some people enjoy the physical challenge of yard work. Every day the grass grows and the homeowner likes keeping it under control. Hiring oneself out as a paid laborer does not arise naturally in this context, and no practical amount of money could convert it into a challenge worth overcoming. If a behavioral economist were to explain to the person who mowed his own lawn but not his neighbor’s for pay that he has been duped by cognitive bias, it’s unlikely he would set up shop as a gardener. He doesn’t experience this behavior as problematic, and neither should we.
The Lottery Winner’s Curse illustrates the meaning we derive from engaging in authentic challenges and how lost we feel when they disappear. Imagine you are a thirty-five-year-old vice president for a big bank working in New York City. Your compensation is $200,000 annually—around four times New York City’s median household income—but after taxes you have just enough to pay basic living expenses and rent the two-bedroom apartment where you live with your stay-at-home spouse and two children. Altogether, it’s a fulfilling life. Your job involves the usual worries, which occupy much of your attention. You come home from work tired but satisfied that you’re putting bread on the table. You have a plan to claw your way to the top and look forward to the luxuries and comforts that your family will someday be able to afford.
Your lucky day comes sooner than you expected. From out of the blue, a long-lost relative dies and leaves you a fortune, say $10 million tax free. Now what? Your job at the bank, which now adds only a pittance to your material circumstances, will start to feel pointless, yet you don’t have quite enough money (or the inclination) to devote yourself to philanthropy full time.
If you complained about your dilemma, you’d find no sympathy. You’re rich! And rational choice theory would offer no support: you have all the same options as before, plus the new ones that your wealth opens up. According to for-itself theory, however, maybe your good fortune wasn’t so good after all, since it sabotaged your engagement with authentic challenges. You can’t go back to your old life, not really, and the difficulties of striving to get ahead have been hollowed out. So far, no new challenge has presented itself in place of the old one. Deep down, you may even regret the windfall, but sadly, there’s nothing to be done about it.
If a demon suddenly appeared, offering a winning lottery ticket, I imagine nearly everyone would take it. I would. But a windfall might make you miserable, as it did our banker, and, evidently, many real-life lottery winners. That result doesn’t fit with purposeful choice; it belongs to the realm of for-itself.
In purposeful behavior, we optimally satisfy our preferences within the constraints of our limited resources. If those constraints are relaxed (typically through more money), we’ll do better. But this is not so in the for-itself realm. This distinction will become clearer as we encounter other thought experiments throughout this book. Powerful intervening figures like the demon with the winning lottery ticket will yank individuals from their lives with offers of free gifts, control over the future, or favorable trades. But the deals will backfire, exposing the importance of context and the limits of purposeful choice.
Authenticity may not play such a crucial role in the purposeful choice model, but it’s intrinsic to our engagement with everyday life. Adventures, like the time the car got a flat tire and we had to walk five miles to a gas station at night, may offer meaning richer than the satisfaction we could derive from consumption, but we do not choose such experiences—the experience chooses us. If we were to slash the tire intentionally, the resulting experience would feel like an exercise in cynicism. Still there’s no reason to characterize this adventure as for-itself: once the car breaks down, rational choice ought to kick in.
Neither Realm Can Eclipse the Other
Suppose you’re setting out to rent an apartment. You’ll consider the features of each available option, how much you value those features, and whether they justify the price. If your income goes up, other things being equal, you’ll rent a bigger and better place. Maybe you are seduced by a cunning broker or by marketing gimmicks that exploit your behavioral biases and so you choose one that’s too expensive. Whether you choose well or poorly, it’s purposeful: you seek to satisfy your desires for convenient location, ample size, aesthetic charm, length of lease, quality of construction, and a dozen other factors, while keeping in mind the alternative uses of the money you might save by renting someplace cheaper.
If we tried to analyze this decision through any lens other than rational choice (or purposeful choice, if biases are in play), we would miss out on all its many insights. No reasonable person chooses an apartment purely on impulse, as a one-time plunge into the chaotic unknown. If you behaved that way, you’d be in big trouble. Consciously or unconsciously, we weigh the consequences of various alternatives and pick the one that seems best, knowing what we know. Rational choice makes this comparison possible by converting disparate options into a common currency.
This mechanism goes beyond ranking and aggregating easy comparisons. Suppose I’m considering three apartments, one downtown (D), one in midtown (M), and one uptown (U), and assume that my wife has delegated the decision to me. Midtown would provide the easiest commute because I could walk to my office and take a relatively short subway ride uptown on the one or two days each week I go to Columbia. My commute from uptown would be second best since I could walk to Columbia and ride the subway to my midtown office. Living downtown, I would have to take a medium subway ride to reach the office and a long one to reach Columbia. Comparing the commutes one at a time, I can arrive at a ranking:
Commute: M > U > D.
The largest of the three apartments is uptown, the second largest is downtown, and the smallest is in midtown.
Size: U > D > M.
My wife, Ianthe, pr
efers downtown to midtown and midtown to uptown. As discussed later, in Part 3, care altruism makes my utility a function of hers, so her preferences matter to me.
Ianthe: D > M > U.
There are many other factors to evaluate in choosing an apartment, but to simplify the decision, consider just these three. I might envision the internal debate as three homunculi residing in my mind, each advocating for a preference. Homunculus 1 focuses on the commute, homunculus 2 on apartment size, and homunculus 3 on pleasing my wife. Suppose the homunculi cast one vote each. In elections considering two apartments at a time, M would beat U, since homunculi 1 and 3 would vote for M, while U would beat D, since homunculi 1 and 2 would vote for U. Yet D would beat M, since D would get the votes of homunculi 2 and 3.
Election: M > U > D > M.
The homunculi would arrive at a stalemate, leaving my wife and me without a place to live.4 I would go round and round until I fired the homunculi and switched to a different approach. I could simplify the decision by choosing to act on a single reason, focusing on the feature that is most important. For me, that’s the commute, and the shortest commute is from midtown. But this simple-minded approach, which throws out troves of valuable information, is no formula for getting ahead. The smarter tack would be to quantify each variable so I can weigh factors such as “how much better is the commute from midtown than the one from downtown?” and “how much do I care about the commute versus pleasing my wife?”
Because these disparate factors become comparable with a common currency, purposeful choice can handle this decision. I might wish the decision were less complicated, but I’ve got to think it through.
Not all decisions are driven by such clarity of purpose. Consider the following thought experiment: after watching a documentary on TV, I decide to donate to a charity devoted to refugees. On my way to the post office to mail a $100 check, a gust of wind catches a $100 bill that happened to be tucked into my shirt pocket and blows it away. At just that moment, I receive an email from a friend who saw the same TV show and was stirred to send $100 to the same charity.
