Barry Schwartz – Choosing When to Choose – interview – Goldstein on Gelt – Aug. 2011

Barry Schwartz – Choosing When to Choose – interview – Goldstein on Gelt – Aug. 2011


Self-Interest And How to Get the Best Out
of Life Transcription of interview with Barry Schwartz
on August 22, 2011. Barry Schwartz is a professor from Swarthmore
College in Pennsylvania, who has written many books, including The Paradox of Choice and
The Battle for Human Nature. One of Professor Schwartzís theories is that
self-interest is not necessarily what makes people tick. Douglas Goldstein, financial planner & investment
advisor, interviewed Barry Schwartz for the second time on Arutz Sheva Radio. Barry Schwartz: Itís a part of what makes
people tick, but it isnít self interest that inspires us to have children and nurture them. Anyone whoís got kids knows that itís a
life-changing experience on a day-to-day basis, and most of these life changes are worse. You donít have any time to yourself. Youíre schlepping from one place to another. Youíre asking yourself why you did this. In the long run, weíre all thrilled, delighted
and feel fulfilled that we have children, but we nurture children not out of self-interest
but out of our interest in their welfare. We participate in civic activities of all
kinds, not out of self-interest, but in our interest in improving the society we live
in. A significant part to most of us is the desire
to do meaningful things that actually improve the lives of other people. What happened, in my view, is that the ideology
of self-interest which is so central to the organization of competitive markets went from
being a piece of the story to being the whole story. Adam Smith wrote two books, the one everybody
knows about called the Wealth of Nations, which is the one that advanced the market. The other one, the Theory of Moral Sentiments,
is all about how people care about the welfare of other people. He thought that the only reason why the competitive
market works is this basic concern that people have to do the right thing and see to the
welfare of their fellow human beings. Whatís happened in economics is that that
piece of us got forgotten, and that wouldnít be so bad. What makes it especially bad is that whether
you show that other piece, the non-self-interested side depends on what kind of society you live
in. If you live in a dog-eat-dog world, where
if you donít take care of yourself, no one will take care of you, youíd better be self-interested. But if you live in a world where education
and health care are provided and thereís a safety net if you lose your job, then thereís
not as much as need to be self-interested. We create a competitive environment and essentially
force people to play out the scenario that economists assumed was basic to human nature
to begin with. I donít doubt that people feel good about
themselves when they do good things or things that improve the welfare of others, but I
donít think itís a big mistake to treat a consequence of that act as its cause. When you do something like that, it has multiple
consequences. One is it makes you feel good, and another
is that it actually improves somebody elseís life. The problem in the academic world is that
it has reached the point where the only way you can claim that somebody is not acting
self-interestedly is if they do something that actually makes them worse off. If I gave a million dollars to a hospital
and it makes me feel good, the cynic will say, ìYes of course, he gave a million dollars
to us because he wanted to feel good. Thatís why he did it.î The only times when
you canít make that kind of explanation is if it causes you to suffer. Thatís way too strange a criterion for calling
something self-interest. Douglas Goldstein: How does your theory about
people having too many possibilities relate to investments, because it is true that people
have tons of choices but given thatís the way it is today, what would you suggest people
do to make a wise decision in their investing? Barry Schwartz: I make two recommendations
in my book that are relevant. One is ìchoose when to choose,î and what
I mean by that is delegate the decision to other people sometimes. It doesnít mean they have to be an expert. It could be somebody who doesnít know any
more than you do, but perhaps has already researched whatever it is youíre looking
for, a digital camera or new computer. You buy the same one your friend bought. On some decisions, you do the research but
for some, you just take advantage of the fact that people you know and trust have done the
research for themselves already. In the case of financial investments, it seems
to be that the thing to do is to hire someone you trust enough to be your agent. Not only because the decisions were likely
would be better, but also because even they arenít any better, you will be spared all
of the anguish that goes into making these decisions. The advisor has the anguish, you just get
the returns. Thatís one piece of advice. The second, which I think is complete enough
in the financial world, is ìdonít try to maximize, donít try to get the best possible
return.î The question you should be asking yourself is what is a good enough return? What kind of return do I need to be able to
live in retirement and the style that I aspire to? Will 5% annually do it? Will 3% annually do it? And then you look for an investment strategy
that will produce that return under the widest set of future circumstances. In effect, youíre choosing to maximize robustness
to uncertainty rather than return on investment, but as near as I can tell, itís an approach
by the end of business stakes. I think the reason why itís an important
approach is that youíre supposed to do risk assessment, but often we attach probabilities
to outcomes and they are complete fiction. Thereís no basis for these probability assignments. You can pretend that the financial world is
precise enough that you can actually make meaningful statements of probability. Whatís the probability that the Yankees are
going to win the World Series? I say itís 70% because I bet on how confident
I am that the Yankees are going to win the World Series. Youíre going to take that to the bank only
if youíre insane. I think a lot of probability statements in
the world of finance have that same character. If you canít actually attach probabilities
to the outcomes, you canít maximize because to maximize is to compute amount times the
probability of getting those amounts. Douglas Goldstein: How about to optimize,
meaning to optimize your portfolio, to develop a portfolio thatís optimal for the clientís
needs, which depends not only on what he needs to do in order to retire but so he can have
a portfolio that he can sleep at night with? Barry Schwartz: The reason why I donít use
the word ìoptimizeî is that ìoptimizeî and ìmaximizeî are sometimes used interchangeably. To really make clear that Iím talking about
something quite different, the term I use, which I stole from a very distinguished psychologist
50 years ago, is ìsatisfies.î I used it in my book The Paradox of Choice and I use
it in talking about robustness. ìSatisfiesî means choosing something that
will produce a satisfactory, not an optimal, result because you canít compute an optimum. You canít compute a satisfactory result. You can ask people sit down, ìWhat do you
need?î ìWhatís good enough?î ìWhat kind of life do you want to live when youíre 65?î
And they tell you and you tell them ìOkay, youíre going to need X percent of return
on investment and this is the best way to achieve that result, and donít tell me that
your friend is getting X plus 2% because thatís not relevant.î Itís probably not true, but even if it was
true, itís not relevant. Your aim is not to get the most; your aim
is to get enough. I think this would transform the way businesses
formulates strategies, whatís a good enough return for the coming fiscal year instead
of how we maximize the return for the coming fiscal year. Douglas Goldstein: That would apply to other
fields as well, for example dating, like how many times you speak to someone who is in
his 30s, 40s or 50 who hasnít found the right woman. Barry Schwartz: I havenít done research on
this, but I think thatís exactly right. I think a lot of the reason why you see single
people in their 30s is they think their task is to find the best possible partner and of
course there is no such thing. The problem when you finally find the best
possible partner is that youíre going to have to ask yourself, ìWhy would this person
possibly want to be with me? Iím not the best possible partner.î Douglas Goldstein: Itís a good philosophy
in life. Itís a very good approach that people should
consider, which is simply that if you constantly want the very best all youíre doing is setting
yourself up for disappointment. Barry Schwartz: The Paradox of Choice is about
that, and the states we see when it comes to choosing colleges, our best students. They have to go to the best school whatever
that means. The colleges have to pick the best students,
whatever that means. The result is that high school becomes a nightmare
of competition and extra tutoring so that theyíll get into the best and theyíll be
miserable if they get into the third best. Douglas Goldstein, CFPÆ, is the director
of Profile Investment Services and the host of the Goldstein on Gelt radio show (Monday
nights at 7:00 PM on www.israelnationalradio.com. He is a licensed financial professional both
in the U.S. and Israel. Securities offered through Portfolio Resources
Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services
LLC. Member NYSE/SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available
in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788
or (03) 524-0942. Disclaimer: This document is a transcription
and/or an educational article. While it is believed to be current and accurate,
divergence from the original is to be expected. The original podcast can be heard at https://sites.google.com/site/goldsteinradioshows/. All information on this website is purely
information and should not be used as the sole basis for making financial decisions. The opinions rendered herein are those of
the guests, and not necessarily those of Douglas Goldstein, Profile Investment Services, Ltd.,
or Israel National News. Readers should consult with a professional
financial advisor before making any financial decisions. Please see the complete disclaimer at https://sites.google.com/site/goldsteinradioshows/.

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