Wild Problems: Home Buying Edition – EconLib

In Russ Roberts’ excellent new book wild problem, he provides great insight into the limits of algorithmic or rational decision-making as traditionally understood by economists and other social scientists. Early on, he describes how some great minds tried to deal with life’s major choices by making lists of pros and cons and weighing them against each other. This section really spoke to me and my experience, as it reminded me of my own struggle to make a big decision like this.

Several years ago, my wife and I wanted to buy a house. It would be our first time, and we knew it was a big decision that we had never made before. Luckily, we thought, we were ready, because we got the data! Well before we are seriously searching for a home, we will make a habit of visiting open house events. In each house, our goal was to simply notice our response to various features. What did we like? What did we dislike? Was the response strong or weak? We will compare notes after each house, and find common points.

We took all this information and wrote a master checklist. We didn’t just have pros and cons – we had subcategories for everyone. Pro list items can be classified as a must-have feature, or a nice feature, or something to add later if missing, etc. Similarly, on the negative side, there were deal breakers, or things to avoid if possible, features that could be removed, or minor annoyances but functional, etc. The pros and cons were put into their various categories, ranked within those categories, and then, for good measure, each data point was assigned a value of one to ten. With all this data gathering and analysis, of course our first home purchase went swimmingly. right?

As you probably guessed, no, it didn’t. Within a few months, we realized we had made a bad choice. We lived in that house for a few years before selling and moving on. Our attempts to use lists and rankings to make a better decision have failed miserably. But why? There are a few things we understand.

First, expectation is not a substitute for experience. Unfortunately, experience comes as a result of your decisions—after you make them. Having never bought a home before, our listings are only what we can show expected Enjoy or dislike. But expectations are not always fulfilled. Some things you thought would be big selling points at first turn out to be not so important, and some things you expected to be minor annoyances at worst can turn out to be deal breakers in practice. it’s just after You feel these things when you find out which is which.

On a closely related point, not all experience is transferable. I have lived in many places in my life. Trailers, brutal concrete barracks, dumpy apartments, modest apartments, and for one very nice stretch, a condo on the waterfront of a North Carolina beach. I thought that this extensive living situation gave me a lot of insight into what it takes to live as a homeowner, but I was wrong about that.

Another problem is radical ignorance – things you don’t know you don’t know. There were things about the house that we realized should have been on the con list, but never occurred to us. Or they weren’t something we could have noticed or learned just by visiting the open house. It is only in process alive A place where you come to discover these things. A pro and con list can only show you what happened to you to be named on the list. Things that are not listed to you, good or bad, will never be reflected. And you won’t know how big the hidden list is, even in principle, because some of the items in it don’t exist yet. They will only appear in your future experiences.

A further complication is that you never know what the future will bring. One thing my wife loved was the yard space – it had so much potential for gardening. He dreamed of creating a beautiful garden, a place where he could spend spring mornings reading a book and sipping coffee and enjoying the sunshine. And it pretty much worked out that way. What we didn’t know, and couldn’t have known, was that right around the time his garden was about to come to fruition, a new neighbor would move in directly across the street, who probably owned the loudest lawn equipment in the history of mankind and seemed to need lawns mowed on an almost daily basis. Almost without fail, every attempt to enjoy a quiet morning in the garden will be met with the overwhelming sound of a gas-powered lawn mower or leaf blower.

So, was it a mistake to buy that house? In Russ Roberts’ framework, the answer is no, not really. As he says at the end of his book, there’s a difference between making a mistake and making a choice that doesn’t work out. Sometimes your decisions don’t work out the way you expected, for reasons you simply didn’t know. It’s not making a mistake, it’s just an experience of the human condition. Our home buying experience has given us an insight into how often certain choices can turn the roll of the dice, in ways you might not anticipate. And I’m glad it did. Instead, what if everything works out exactly as we hoped? We may have left with the impression that we nailed the home buying algorithm, never knowing how much of our apparent success was down to simple luck. The experience we’ve gained has made us a little wiser, and a better understanding of how expectations and experience can collide. And in the end, isn’t that a better, richer result?


Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University.

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