The Art of the Good Life

1

MENTAL ACCOUNTING

How to Turn a Loss into a Win

I should have known. Shortly before the motorway exit in Bern, there’s a gray speed camera that lies in wait for unwary drivers. It’s been there for years. No idea what I was thinking. The flash jolted me out of my reverie, and a quick glance at the speedometer confirmed my fears: I was going at least 10 mph too fast, and there was no other car for far and wide, nobody else I could pin the flash on.

The next day in Zurich, I watched from a distance as a police officer tucked a ticket underneath the windscreen wiper of my car. Yes, I was parked illegally. The car park was full, I was in a rush, and finding a legal parking space in central Zurich is like finding a deckchair in the Antarctic. For a moment I considered running over. I pictured myself standing in front of the officer, gasping for breath, hair disheveled, trying to make him understand my dilemma. But I let it go: years of experience have taught me that such things only make you feel silly. You look small, and you end up losing sleep.

Parking tickets used to infuriate me. These days I pay them with a smile. I just debit the sum from the account I’ve earmarked for donations. Each year I set aside 10,000 francs for good causes, and I pay all my fines out of that. In the world of psychology, this simple trick is known as mental accounting. I borrowed it from Richard Thaler, one of the founding fathers of behavioral economics. Mental accounting is considered a classic logical fallacy. People treat money differently depending on where it’s coming from, so if you find money on the street, you treat it more casually and spend it more quickly and more frivolously than money you’ve actually earned. The parking-ticket example illustrates how you can turn this logical fallacy to your advantage. You’re deliberately tricking yourself—for the sake of your own peace of mind.

Say you’re traveling in an impoverished country, and your wallet disappears. Minutes later you find it again, and all that’s missing is the cash. Do you see this as theft, or as a donation to somebody who’s probably far worse off than you are? No amount of mental gymnastics will alter the fact that your money was stolen, but the significance of what happened, the interpretation of the event—that you can influence.

Living a good life has a lot to do with interpreting facts in a constructive way. I always mentally add 50 percent to prices in shops and restaurants. That’s the amount this pair of shoes or sole à la meunière will actually cost me—taking income tax into account. If a glass of wine costs 10 dollars, I’ll have to earn 15 in order to afford it. For me, that’s good mental accounting, because it helps me keep my expenditure in check.

I prefer to pay for hotels in advance. That way I won’t spoil a romantic weekend in Paris by being confronted with the bill at the end. The Nobel Laureate Daniel Kahneman calls this the peak–end rule: you remember the high point and the end point of your holiday, but the rest is forgotten. We’ll take a closer look at this effect in Chapter 20. If the end of the trip is a big fat bill, presented to you like marching orders by a snooty French receptionist and complete with mysterious extras he has probably added on purpose (to punish you for not speaking accent-less French), your memory of the romantic getaway will be forever tarnished. Precommitment, they call it in psychology: pay first, consume later. It’s a form of mental accounting that takes the sting out of payment.

I pay taxes with equal nonchalance. After all, I can’t upturn the taxation system single-handed. So I compare what I get in return for my money in the lovely city of Bern with cities like Kuwait, Riyadh, the jam-packed concrete wasteland of Monaco or the surface of the moon—all places without income tax. Conclusion? I’d rather stay in Bern. People who move to ugly cities for tax reasons make themselves seem petty and stubborn—not exactly solid bedrock for a good life. Interestingly, my transactions with such individuals have thus far all been bad.

That money can’t buy happiness is a truism, and I’d certainly advise you not to get worked into a lather over incremental differences in price. If a beer’s two dollars more expensive than usual or two dollars cheaper, it elicits no emotional response in me whatsoever. I save my energy rather than my money. After all, the value of my stock portfolio fluctuates every minute by significantly more than two dollars, and if the Dow Jones falls by a thousandth of a percent, that doesn’t faze me either. Try it for yourself. Come up with a similar number, a modest sum to which you’re completely indifferent—money you consider not so much money as white noise. You don’t lose anything by adopting that attitude, and certainly not your inner poise.

There was a period around the time I turned forty, after a long spell as an atheist, when I started doggedly trying to find God again. For several weeks the obliging Benedictine monks at Einsiedeln put me up as their guest. I have fond memories of this time, remote from worldly hustle and bustle—no TV, no internet and barely any phone signal, thanks to the thick medieval walls. Most of all I enjoyed the silence during meals—the monks were forbidden from speaking. I may not have found God, but I did learn another mental accounting trick, this time temporal rather than monetary. In the refectory, as they called the dining hall, the cutlery is placed in a small black casket about eight inches long. At the beginning of the meal, you open the lid and extract the neatly bundled fork, spoon and knife. The message? You’re basically already dead, and everything that follows is a gift. Mental accounting at its best. It taught me to value my time—and not to waste it getting into a tizzy.

Do you hate queuing at the supermarket till, waiting at the dentist’s, and sitting in traffic jams on the motorway? Your blood pressure reaches 150 in seconds, and you start frantically releasing stress hormones. But instead of getting upset, consider the following: without this unnecessary agitation eating away at your body and soul, you’d live a whole year longer. That extra year would more than make up for all the time you spent in queues. The upshot? You can’t nullify the loss of time and money, but you can reinterpret it. Open your box of mental accounting tricks and see for yourself: the more practiced you are at dodging fallacies, the more fun it is to occasionally commit one on purpose. Remember, it’s for your own good.

2

THE FINE ART OF CORRECTION

Why We Overestimate Set-Up

You’re sitting on a plane from London to New York. How much of the time is it sticking to the flight path, do you think? 90 percent of the time? 80 percent of the time? 70 percent of the time? The correct answer is never. Sitting beside the window, gazing out at the edge of the wing, you can watch the jumpy little ailerons—they’re there to make constant adjustments to the flight path. Thousands of times per second, the autopilot recalculates the gap between where the plane is and where it should be and issues corrective instructions.

I’ve often had the pleasure of flying small planes without autopilot, when it’s my job to carry out these minuscule adjustments. If I release the joystick even for a second, I drift off course. You’ll recognize the feeling from driving a car: even on a dead-straight motorway, you can’t take your hands off the wheel without veering out of your lane and risking an accident.

Our lives work like a plane or a car. We’d rather they didn’t—that they ran according to plan, foreseeable and undisturbed. Then we’d only have to focus on the set-up, the optimal starting point. We’d arrange things perfectly at the beginning—education, career, love life, family—and reach our goals as planned. Of course, as I’m sure you know, it doesn’t work like that. Our lives are exposed to constant turbulence, and we spend much of our time battling crosswinds and the unforeseen caprices of the weather. Yet we still behave like naïve fair-weather pilots: we overestimate the role of the set-up and systematically underestimate the role of correction.

As an amateur pilot I’ve learned that it’s not so much the beginning that matters but the art of correction following take-off. After billions of years, nature knows it too. As cells divide, copying errors are perpetually being made in the genetic material, so in every cell there are molecules retroactively correcting these errors. Without this process of DNA repair, as it’s known, we’d die of cancer hours after conception. Our immune system follows the same principle. There’s no master plan, because threats are impossible to predict. Hostile viruses and bacteria are constantly mutating, and our defenses can only function through perpetual correction.

So next time you hear that an apparently perfect marriage between two perfectly well-matched partners is on the rocks, don’t be too surprised. It’s a clear case of set-up overestimation. Frankly, anyone who’s spent more than five minutes in a relationship should already know that without ongoing fine-tuning and repairs, it doesn’t work. All partnerships have to be consistently nurtured. The most common misunderstanding I encounter is that the good life is a stable state or condition. Wrong. The good life is only achieved through constant readjustment.

Then why are we so reluctant to correct and revise? Because we interpret every little piece of repair work as a flaw in the plan. Obviously, we say to ourselves, our plan isn’t working out. We’re embarrassed. We feel like failures. The truth is that plans almost never work out down to the last detail, and if one does occasionally come off without a hitch, it’s purely accidental. As the American general—and later president—Dwight Eisenhower said, “Plans are nothing. Planning is everything.” It’s not about having a fixed plan, it’s about repeated re-planning—an ongoing process. The moment your troops meet your opponents’, Eisenhower realized, any plan is going to be obsolete.

Political constitutions lay out the fundamental laws on which all other legislation rests, and in theory should be timeless. Yet not even constitutions go unrevised. The constitution of the United States—originally signed in 1787—has been amended twenty-seven times so far. The Federal Constitution of the Swiss Confederation has undergone two thorough-going revisions since 1848 and dozens of partial ones. The German constitution of 1949 has been altered sixty times. This isn’t an embarrassment; it’s eminently sensible. A capacity for correction is the foundation of any functional democracy. It’s not about electing the right man or the right woman (i.e., the “right set-up”); it’s about replacing the wrong man or the wrong woman without bloodshed. Democracy has a built-in correction mechanism—and it’s the only form of government that does.

In other areas, unfortunately, we’re even less willing to correct ourselves. Our school system is largely geared toward the set-up: the emphasis on factual knowledge and certifications makes it seem like life is primarily about getting the best possible grades and giving our careers the best possible jump-start. Yet the connection between degrees and workplace success is growing ever more tenuous, while the ability to self-correct is growing ever more important—even though it’s hardly taught at school.

The same phenomenon is apparent in the development of our characters. I’m sure you know at least one person you’d consider a wise and mature individual. What do you think: was it the set-up—the perfect genes, an ideal upbringing, a first-class education—that made this person so wise? Or was it acts of correction, of constant work on their own issues and shortcomings, a gradual elimination of these inadequacies from their lives?

The upshot? We’ve got to get rid of the stigma attached to correction. People who self-correct early on have an advantage over those who spend ages fiddling with the perfect set-up and crossing their fingers that their plans will work out. There’s no such thing as the ideal training. There’s more than one life goal. There’s no perfect business strategy, no optimal stock portfolio, no one right job. They’re all myths. The truth is that you begin with one set-up and then constantly adjust it. The more complicated the world becomes, the less important your starting point is. So don’t invest all your resources into the perfect set-up—at work or in your personal life. Instead, practice the art of correction by revising the things that aren’t quite working—swiftly and without feeling guilty. It’s no accident that I’m typing these lines in Word 14.7.1. Version 1.0 hasn’t been on the market for years.

3

THE PLEDGE

Inflexibility as a Stratagem

In 1519 the Spanish conqueror Hernán Cortés reached the coast of Mexico from Cuba. He summarily declared Mexico a Spanish colony, and himself the governor. He then destroyed his ship, eliminating any chance of return for himself and his men.

From an economic perspective, Cortés’s decision makes no sense. Why exclude the possibility of returning right from square one? Why exclude alternatives? One of the most important principles of economics, after all, is that the more options you have, the better. So why did Cortés abandon his freedom of choice?

Two or three times a year, I meet the CEO of a major international corporation at various obligatory dinners to which we’ve both been invited. For years I’ve found it striking that he always turns down dessert. Until recently, I considered his behavior illogical and ascetic. Why exclude the sweet option on principle? Why not decide on a case-by-case basis? Why not make his decision dependent on how much he weighs, how filling the main course was, or how tempting the dessert looks? A blanket refusal of pudding may be a less dramatic decision than barring your return home, but at first glance they both seem unnecessary.

One of the world’s most important experts on management is Clayton Christensen, the Harvard professor known for his international bestseller The Innovator’s Dilemma. A committed Mormon, Christensen leads his life according to pledges—an old term for a promise one cannot break. If pledge sounds too fusty, call it “absolute commitment.” I’m a fan of the older term, because these days “commitment” is subject to inflation and often used insincerely (e.g., “we are committed to improving the state of the world”). Only an individual, not an organization, can make such a pledge.

In his younger years, Christensen saw many managers sacrifice the first stage of their lives to their careers so that they could dedicate the second half—by now financially independent—to their families, only to discover that their families had either fallen apart or long since flown the coop. So Christensen made a pledge, promising God not to work at the weekends and to eat dinner at home with his family on weeknights. Sometimes, this meant he’d get to work at three in the morning.

When I first heard this, I found Christensen’s behavior irrational, obstinate and uneconomical. Why be so inflexible? Why not decide on a case-by-case basis? Sometimes you simply have to work on the weekend, and then you can make up for it by working a bit less on Monday and Tuesday. Flexibility is an asset, surely, especially at a time when everything is in flux.

Today I have a different perspective. When it comes to important issues, flexibility isn’t an advantage—it’s a trap. Cortés, the dessert-averse CEO and Clayton Christensen: what all three of them have in common is that they use radical inflexibility to reach long-term goals that would be unrealizable if their behavior were more flexible. How so? Two reasons. First: constantly having to make new decisions situation by situation saps your willpower. Decision fatigue is the technical term for this. A brain exhausted by decision-making will plump for the most convenient option, which more often than not is also the worst one. This is why pledges make so much sense. Once you’ve pledged something, you don’t then have to weigh up the pros and cons each and every time you’re faced with a decision. It’s already been made for you, saving you mental energy.

The second reason inflexibility is so valuable has to do with reputation. By being consistent on certain topics, you signal where you stand and establish the areas where there’s no room for negotiation. You communicate self-mastery, making yourself less vulnerable to attack. Mutual deterrents during the Cold War were based largely on this effect. The USA and the USSR both knew that a nuclear strike would mean instant retaliation. No deliberation, no situational weighing up of pros and cons. The decision for or against the red button had already been taken. Pressing it first simply wasn’t an option.

What applies to nations applies equally to you. If you lead a life consistent with your pledges—whatever those look like—people will gradually start to leave you in peace. Legendary investor Warren Buffett, for instance, refuses on principle to negotiate. If you want to sell him your company, you’ve got exactly one shot. You can make precisely one offer. Buffett will either buy the company at the price you suggest, or he won’t buy it at all. If it’s too high, there’s no point lowering it. A no is a no, and everybody realizes that. Buffett has acquired such a reputation for inflexibility that he’s now guaranteed to be offered the best deal right from the word go, without wasting any time on haggling.

Commitments, pledges, unconditional principles—it sounds simple, but it’s not. Say you’re driving a truck full of dynamite down a ramrod-straight, single-lane road. Another truck is coming toward you, also loaded with dynamite. Who swerves first? If you can convince the other driver that you’ve made the stronger commitment, you’ll win. In other words, the other driver will swerve first (assuming he’s acting rationally). If, for example, you can convince the other driver that your steering wheel is locked and you’ve thrown the key out of the window, you’re signaling an extremely strong commitment. That’s how strong, believable and radical your pledges have to be in order for your signals to be effective.

So say good-bye to the cult of flexibility. Flexibility makes you unhappy and tired, and it distracts you from your goals. Chain yourself to your pledges. Uncompromisingly. It’s easier to stick to your pledges 100 percent of the time rather than 99 percent.

4

BLACK BOX THINKING

Reality Doesn’t Care About Your Feelings; or, Why Every False Step Improves Your Life

The British de Havilland Comet 1 was the world’s first commercially produced jetliner. In 1953 and 1954, it was involved in a number of mysterious accidents in which the machines broke up in midair. One plane crashed shortly after take-off from Calcutta airport; another split apart as it flew over the Italian island of Elba. A few weeks later, a Comet 1 plummeted into the sea outside Naples. In all three cases, there were no survivors. The fleet was grounded, but investigators couldn’t determine what caused the crashes, so flights were resumed. Just two weeks later, another plane tumbled from the sky just outside Naples (again)—the final nail in the Comet 1’s coffin.

Eventually the flaw was identified: hairline cracks had formed at the corners of the plane’s square windows, spreading across the fuselage and eventually causing the whole machine to come apart. The Comet 1 is the reason why passengers these days only ever peer through oval windows. But there was another, more significant consequence: after the disaster, accident investigator David Warren suggested that a near-indestructible flight data recorder (later dubbed a black box) be installed in each and every jetliner—an idea that was later implemented. A black box records thousands of pieces of data per second, including the pilots’ conversations in the cockpit, making it easier to determine the exact cause of a crash.

No industry takes mistakes more seriously than airlines. After his spectacular emergency landing in the Hudson River, Captain Sullenberger wrote: “Everything we know in aviation, every rule in the rule book, every procedure we have, we know because someone somewhere died.” With each crash, future flights become safer. This principle—let’s call it black box thinking—is an exquisite mental tool that can be applied to any other area of life. The term black box thinking was coined by Matthew Syed, who dedicated a whole book to it.

Human beings are the exact opposite of the aviation industry. Say, for instance, you bought shares several years ago for 100 dollars each. Now they’re valued at a measly 10 dollars. What’s going through your head? You’re hoping—probably praying—that the stock price rebounds as soon as possible. Or you’re cursing the company management. Or you’re reaching for the bottle to take the edge off your frustration. Very few people simply accept reality and analyze their own flight recorders. This requires precisely two things: a) radical acceptance and b) black box thinking. First one, then the other.

Overdraft at the bank? It’s staying put, I’m afraid, regardless of your feelings. Angry e-mail to the boss? There’s no getting it back, no matter how many glasses of wine you drink trying to justify your tantrum. Nor does the cancer growing inside you care if you think about it or ignore it.

Psychologist Paul Dolan at the London School of Economics has observed how people who are gaining weight will gradually shift their focus to areas of their lives where the number on the scale is less relevant—to their jobs, for instance. Why? Because it’s easier to redirect your focus than to lose weight. Yet the fat couldn’t care less about your focus, your interests or your motivation. The world isn’t remotely interested in what you think of it or how you feel. Banish all such obscurantist tactics from your brain.

“Nothing is more fatiguing nor, in the long run, more exasperating than the daily effort to believe things which daily become more incredible. To be done with this effort is an indispensable condition of sure and lasting happiness,” wrote mathematician and Nobel Prize winner Bertrand Russell. This is an exaggeration, of course, because sure and lasting happiness does not exist. Yet Russell is correct in his observation that self-deception is incompatible with the good life. Accepting reality is easy when you like what you see, but you’ve got to accept it even when you don’t—especially when you don’t. Russell follows up with an example: “The playwright whose plays never succeed should consider calmly the hypothesis that they are bad plays.” You may not write plays, but I’m sure you can come up with examples from your own life. Perhaps you have no talent for foreign languages? Not a natural manager or athlete? You should take these truths into account—and consider the consequences.

Radical acceptance of defeats, deficiencies, flops—how does that work? If we’re left to our own devices, it’s a bit of a chore. Often we see other people far more clearly than we see ourselves (which is why we’re so frequently disappointed by others but rarely by ourselves), so your best shot is to find a friend or a partner you can rely on to give you the warts-and-all truth. Even then, your brain will do its best to soft-pedal the facts it doesn’t like. With time, however, you’ll learn to take seriously the judgments of others.

Alongside radical acceptance, you’ll need a black box. Build your own. Whenever you make a big decision, write down what’s going through your mind—assumptions, trains of thought, conclusions. If the decision turns out to be a dud, take a look at your flight data recorder (no need to make it crash-proof; a notebook will do just fine) and analyze precisely what it was that led to your mistake. It’s that simple. With each explicable fuck-up, your life will get better. If you can’t identify your mistake, you either don’t understand the world or you don’t understand yourself. To put it another way, if you can’t spot where you put a foot wrong, you’re going to fall flat on your face again. Persistence in your analysis will pay off.

Side note: black box thinking works not only on a personal level but also in the business world. It ought to be standard practice for every corporation.

By themselves, radical acceptance and black box thinking are not enough. You’ve got to rectify your mistakes. Get future-proofing. As Warren Buffett’s business partner Charlie Munger has observed, “If you won’t attack a problem while it’s solvable and wait until it’s unfixable, you can argue that you’re so damn foolish that you deserve the problem.” Don’t wait for the consequences to unfold. “If you don’t deal with reality, then reality will deal with you,” warns author Alex Haley.

So accept reality—accept it radically. Especially the bits you don’t like. It might be painful in the moment, but it’s got to be done. It’ll be worth it later on. Life isn’t easy. Even living a good life, you’ll have to deal with your fair share of failure, and it’s okay to put a foot wrong every now and then. The key is to discover why it happened and tackle the issue at its root. Because problems aren’t like great Bordeaux wines—they don’t improve with age.