The Discounted Utility Maximization Bias

At this point, I’m pretty sure there aren’t really concrete rules on how to live life.

I’m 30 years old and I realize that most people are just winging it to some degree.

That being said, everyone eventually arrives at their own approach to living and understanding life, whether intentionally or not. We develop our own litany of systems, beliefs and values for which to navigate life.

I personally think life is about finding the mindset, goals, and environment that consistently bring you the most contentment and fulfillment.

My contentment typically comes from: close relationships, security, and not being too stressed.

My fulfillment generally comes from: achieving goals, having alignment with my work, and creating art.

With these factors in mind, I try to evaluate different life options through a framework I coyly refer to as the Discounted Utility Maximization Bias.

This “DUMB” framework posits a few simple things (which I believe many rational people already subconsciously do):

Economists posit that humans are “utility-maximizing” creatures. By nature, we are supposed to make decisions that improve our life and wellbeing. Economists commonly define “utility” as pleasure, benefit, or satisfaction.

In order to define “utility” more practically for me, I imagine my entire life graphed over many years.

If I were to rank each year out of 10 (at the end of each year), what score would I give it?

There’s no definition for what a “10” is and it’s purely a self-reflective, subjective number. But theoretically, how can I maximize my “annual utility” scores over the course of my entire life?

I find that this concept promotes long-term thinking.

The container of “years” is a useful way for me to conceptualize time. The “10” scale is a bit arbitrary and vulnerable to hedonic adaptation, but I think it’s still a practical tool in the absence of good alternatives.

One caveat here: utility maximization is not necessarily equal to happiness. It’s slightly more amorphous.

For example, I’ve had “better” years when I worked hard to achieve a difficult outcome, even if I was less consistently “happy” (e.g., grade 12 or junior year of college).

Next, we borrow the concept of “discounting” from actuarial science and finance.

Essentially, nothing is guaranteed in life and as a result, we should value the years closer to us more. We should value next year more than a year fifty years from now.

I’m not certain, but I also think time is at least slightly more valuable when you are younger because of physical constraints (e.g., a year of travel in your 20s is more desirable than a year of travel in your 80s).

To me, it doesn’t make sense to save all your money for retirement or to roll the maximum number of vacation days every year.

Our health and the health of our loved ones is precious and fickle. It can be useful to remember that we’re just silly bags of wet, fragile meat.

That threat of mortality should keep us honest and prompt us to enjoy what we have now with who we have now.

I find that this is in contrast to the “Regret Minimization Framework” (which Bezos famously espouses). I believe that prioritizing your feelings at your deathbed, eulogy, and your regrets then, is optimizing for the wrong thing. That mindset dramatically overestimates legacy, achievement, and your sentiment at the end (by definition, a very short period of time).

So when I envision my life, I envision the /10 annual scores each year for the rest of my life.

Then I discount (or “impair”) those scores to today. The actual rate itself doesn’t matter as it’s mostly a thought exercise.

The real question is: what choices or decisions will improve my life the most over time?

And lastly, this is all just a “bias”. It’s not a strict set of rules I constantly measure against. This just helps me make decisions.

Should I leave my job to pursue something potentially more intrinsically rewarding?

Should I leave for the winter or spend more time with my family?

Should I buy a nicer car? Should I forego this money to buy a more lavish gift for a friend?

I also frequently violate the principles of DUMB because I’m lazy, human, or emotionally tilted. But it’s still a useful mental model to me.

Here are some of the ways I like to apply DUMB in a more practical sense:

By far, the two things that generate the most utility in my life are: 1) a great partner, 2) great alignment with my work.

I’ve said this before, but these are the two earthly decisions that theoretically span the longest amount of time. So if we want to maximize lifetime utility, we should do our best to get it right.

However, making the decision correctly is much, much better than making the decision quickly. Most people go through several breakups, career pivots, and a resounding chorus of “what am I doing with my life?” until they get it right.

I’m not sure I’m too biased by my own timeline, but I think trying to find work alignment by age 30 is a terrific and perhaps ambitious goal.

Your 20s should be about experimentation, failure, and self-examination. Realize that turbulence can be a good teacher. Definitely don’t let your grade 12 self make all your life decisions for you. That version of yourself is probably stupid.

I have much less advice for finding a great partner – I just got really lucky. If you’re a guy, maybe try growing your hair longer or making more money or something.

One thing I’ve noticed about goal achievement is that the joy from it is often fairly fleeting.

Sometimes, my hardest goals (like getting into private equity) resulted in very little euphoria because it was paired with self-doubt and endless comparison.

I think a solution is to pick a deep, “infinite” goal that has no specific end date or win condition. This means you can probably do it for your entire life.

Importantly, you have to enjoy the actual task that helps you toward that goal. If you find something that you enjoy doing for the process and that you can continually get better at, you’ll always have something to look forward to.

For me, the most obvious one is producing music. But I also derive a ton of joy from building Peak Frameworks.

Finding a steep skill curve you that enjoy climbing is the easiest way to think that your life has some kind of vague purpose.

Life is not always predictable. Sometimes it is, but sad, unpredictable stuff happens all the time. Although we can’t prevent all the misery and turbulence that awaits us, we can try to relish what we have.

Delaying gratification is useful for goal achievement, but it’s lousy for a lot of other things. I generally plan on “dying with zero”, which motivates me to spend.

Similarly, I often need to scold my parents to take vacations and spend money on flights because they’re not used to spending money on themselves.

Provided that you are still enjoying life, I think it makes sense to try and live as long as possible. It’s intuitive, but people don’t always make conscious efforts towards longevity.

In my view, if there are tangible ways I can improve my lifespan and “healthspan” (number of good years) without dramatically sacrificing on my quality of life, I should.

I subscribe to a lot of personal health protocols now (red light machine, morning sunlight, intermittent fasting, lifting weights, standing desk, etc.) with the explicit goal of improving my long-term health. I’m by no means a health nut, but I want to be aware of the highest leverage health practices.

I recognize that this may not be the life framework for you.

I just know that I used to over-index on an achievement-oriented mindset, which didn’t always result in good long-term outcomes or consideration for my personal wellbeing. This mindset has helped a bit.