"Puzzle-solving is frustrated by a lack of information...mysteries often grow out of too much information."
Walking back upstairs from the mailbox, I'm excited because the latest electronics magazine arrived. I've been reading these magazines for the past several months, getting ready to buy a new stereo system for my car. It doesn't feel like living if my trunk isn't full of speakers, especially speakers that give me a back massage while I listen to music. I've been looking at different brands, different options, and different places to have it installed. There are so many options and it's kind of confusing trying to keep it all straight.
Confusing or not, I also received my tax refund in the mail so it's time to go to the electronics store and buy my new system [note: this is not a post about the correct or incorrect use of tax refunds].
I walk to the door and reach for my keys. They're not there. Fine. I have to go grab them out of my coat pocket. Nope; they're not there either. This is frustrating. I spend the next 15 minutes looking for my keys.
It turns out my keys are on the counter, underneath some junk mail. I get to the electronics store and it also turns out that it really doesn't matter what kind of stereo system I get. They are all mostly the same.
The case of the missing keys was a puzzle. The keys had exactly one location, and having more information about where they weren't, helped me narrow in on the exact answer.
The case of the best car stereo system was a mystery. There is no single, best answer. Obtaining more and more information only made me more confused, making it more difficult to find what I was looking for.
As we go through life, some of our problems and issues will be puzzles, and some of them will be mysteries. It's helpful to understand which one you're dealing with.
Puzzles and Mysteries
Author Malcolm Gladwell wrote about puzzles and mysteries in his article, Open Secrets (which I read in his book, What the Dog Saw). He takes an idea that Gregory Treverton originally wrote about and applies it to the Enron case. The idea is that a puzzle is something that can be solved. Puzzles have an answer. Mysteries, on the other hand, has no single solution. Both of these are fine, but it's when we start to treat mysteries as puzzles that we can run into problems.
Puzzles have one solution. The games we play, such as crosswords and Sudoku, have an answer. They are puzzles. Jigsaw puzzles are puzzles (insights from Captain Obvious, at your service). There is one solution to how the jigsaw puzzle goes together.
Puzzles have a single answer, even if we don't know what that answer is. Collecting more information allows us to put more and more pieces of the puzzle together until we solve it.
It's not just games that are puzzles. Finding bin Laden was a puzzle. There was one answer. We needed more information to find that answer. The Cold War was full of puzzles; how many missiles did the Soviets have? How accurate are they? How far can they travel?
In regular life, filing your taxes is a puzzle. You earned income, you received interest and dividends, you sold investments for gains, and you incurred expenses that the government deems are not taxable. The amount of income tax you owe, and whether or not you over-or under-paid has one answer. You just have to collect all your information and solve the puzzle.
Mysteries, on the other hand, don't have one simple answer. Mysteries require judgments. They require many decisions that happen in the face of uncertainty. Often with mysteries, we won't know if our decision was "right" until we know what happens in the future. When we try to solve a mystery, collecting more information doesn't help. In fact, it often hurts because too much information can lead to decision paralysis.
A mystery, if you work for national defense, is how might terrorists terrorize? There isn't just one answer. Gladwell talks about the Enron case being a mystery, not a puzzle. Collecting more information couldn't have helped.
Your personal finances are a mystery, not a puzzle. Too much information leads to us doing nothing. A strategy that works for one person might not work for another. There are too many variables.
Personal finance is about managing trade-offs. It's incredibly important to understand the trade-offs - that is, what you have to give up in order to get something else. But the fact that we have to manage trade-offs necessarily means that personal preferences and individual values will be taken into account. That alone suggests that there is not one single answer.
Everyone Is Different
Everyone's been on their own journey. We all have different vantage points, values, and comfort levels. For people with credit card debt, it will work well for some people to prioritize paying off the debts with the largest interest rate. For others, it makes more sense to focus on the debts with the lowest balances, because they know the feeling of paying off a balance will give them a shot of confidence that will make it easier to stick with the program.
For those with investments, some people will be comfortable owning risky investments and are prepared to rebalance when those risky investments fall in value. Others (especially those who watch too much news) know that they will lose sleep if risky investments fall in value and risk selling those investments, thus locking in the loss.
Some people put cash in envelopes, some people track every transaction, some people want to live a modest lifestyle and be financial independent at a young age, some people want to live a more expensive lifestyle and work longer. Tastes and preferences matter. Tastes and preferences mean you are looking at a mystery, not a puzzle.
Personal Finance Is Not a Puzzle
So far that seems logical. However, many people treat personal finance like it's a puzzle. They think there is a single solution out there somewhere. They go searching for that single answer. Eventually, they get frustrated and give up. There is no single answer.
Perfect is the enemy of good, and not just because you can waste a lot of time searching for perfect, and use the quest for perfection as a way to hide. It's because perfect doesn't exist.
Take positive steps forward. Get clear about what money needs to do for you, and design a life around that.
You only have one life. Live intentionally.
Farnam Street: The Difference Between a Puzzle and a Mystery
Malcolm Gladwell: What the Dog Saw
Brad Klontz, Ted Klontz: Mind Over Money
The New Yorker: Open Secrets
Psychology Today: Is Your Money Problem a Puzzle or a Mystery?
The RAND Blog: Risks and Riddles
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