It takes Micros to make a Macro

Your life as a database

[Fourth in a series. The beginning is here]

The first math lesson

Every parent tells (or should tell) every child that their lives are the sum of their choices. Mathematicians use symbols as shorthand to condense complexity into a few characters. The Greek capital letter Sigma, ∑ , used for “Sum,” is often part of an equation for adding things up, thus:

In words this says “When adding up your choices, start with choice 1 for i and add all the following choices until you reach n.” This allows us to specify a value for n and get an immediate response. So, if the value of the next choice is just the next integer and if n = 4 we have

It is not very interesting to just use sequential integers as values. Let’s give meaning to 1, 2, 3 and 4 by naming four different broad categories of life choices, each of which may take on a separate value as a result of unfolding events. To live a prosperous life, suppose you only need answers to four questions.

1 = Where? → Location

2 = How?  → Education

3 = Who? → Marriage

4 = What? → Job

If each of those choices are made once and very well, it would seem that the sum at the end of a long life would be greater than if those choices had been made badly or at best uncritically. We will define the quality of each decision on the familiar scale of 1 through 10 with 10 representing excellence. This leads to differing totals of values of i added together in our sum-of-choices-make-a-life statement. Below, we see briefly how five random humans fare, then another five, then another. Each cycle is a new outcome for five new people. A country of 350 million people making billions of far more refined tiny decisions very minute of every day constitutes a society which is, itself, the sum of its choices.

To get elected you need to manipulate as many of those people as possible.

The Preference for Time

What is missing above is the matter of When? Conduct your life precisely in the order shown, first deciding on where to live, then where to go to school, then whom to marry, then where to work. Simple to say, hard to do. Ever know anyone who did them out of order? The order of any four things may be rearranged into 24 different permutations. Many things are cheaper at different times. It is hugely more expensive to get a graduate degree when you are 50 than when you are 25 (ask me how I know). You can marry someone with very strong opinions about where she wants to live (something you might know). Some things depend on others. Changing spouses and location nearly always happens concurrently (ask anyone who has done it).

More micro. Because my utility company charges more for electricity during peak hours it is more expensive to do my laundry during certain hours than at other times. Your decision to rent or buy is controlled by mortgage interest rates, which fluctuate nearly instantly for every person, influenced by a credit score, itself an aggregate of hundreds of individual small credit decisions undertaken or foregone over time. Your life is a database of choices, each one date and time stamped.

If you are over the age of 40 and have lived a bit, the next statement should not be surprising:

You spend every second of your waking adult life, explicitly or implicitly, thinking about interest rates.

The reason is that interest rates put a price on the decision to act or wait. Interest rates govern whether you save or spend at any specific instant. When to spend becomes a choice, a choice that comes with a cost you must manage with your behavior. (At this link is a detailed analysis of the process just described under the prosaic title “Should I Balance my Checkbook?” where checkbook is a placeholder for an orderly life managed carefully over many years. The PDF version is here. Trust me, all of your choices are there.)

The Fisher Equation

Irving Fisher gets credit for this equation

where i is the nominal interest rate you pay a bank; r is the real rate of interest, essentially the bank’s compensation for waiting to get its money back; and infl is the expected inflation rate. Through infl - the printing press - your government artfully massages your cost of acting or waiting, manipulating millions of lives in a direction chosen by the bureaucrats.

Thus, every four years the Federal Reserve Board reduces interest rates just as we are presented with a choice that proves it takes a village to make an idiot.

[Next time: Measuring nothing]