Thinking Like an Economist

Hello friends, and welcome to The Daily Preneur! If you want to join 170 other readers learning about preneurship and economics, subscribe below:

You can check out our other articles and follow us on Twitter.

Impulsivity is a funny thing.

It can lead to unforgettable life experiences like skydiving with your ex-girlfriend -- yes, that happened -- or booking random week-long trips to Europe after reading a quote from Vagabonding by Rolf Potts. Yes, that also happened.

I loved the quote so much that I had it tattooed on me while in Scotland. Some of my favorite memories are on the other side of saying "f*** it" and just doing it.

On the other hand, impulsivity can lead to a host of bad outcomes. I've gained and lost around $2K, betting on risky stock options thinking I had an edge. In reality, I was uninformed and making impulsive trades. I consider myself lucky, however. Many people have lost millions of dollars in the markets by not thinking rationally or with their long-term interests in mind. Here's a great video I'm glad I didn't end up on.

On the health front, food giants like Kellogg's, Pepsico, McDonald's, and Coca-Cola capitalize on impulsivity. They're masters at satisfying your craving and keeping you coming back. They make their products highly desirable by adding heaping amounts of sugar, sodium, and oil. Plus, they make them appear "cost-effective." In the short term, you may save a dollar and satisfy your craving, but in the end, you'll operate at a loss.

The economic impact of a highly-processed and calorie-dense diet benefits big food and big pharma. But not you. You get screwed. They get the financial upside, and you get all the downside.

People who eat primarily fast food are more likely to be obese and live an unhealthy lifestyle. At least, that's what the data says. I'm not claiming you should never eat fast food -- hell, I love a good McMuffin. But for most people, it's just more economical to consume highly processed/fast food in moderation (or not at all). Or, at the very least, have a plan when consuming it.

So, what's the difference? How do some impulse decisions lead to unforgettable life experiences and others to obesity and financial losses?

Let's approach this question -- and impulsivity -- as economists. One reason economics exists is to explore the short-term and long-term impact of policies and decisions by companies and governments. The economist would say that the paradox of impulsivity can be explained by not considering the long-term implications of a decision. It may sound academic and stupid, but it's true.

Those who chronically consume a diet high in processed and fast food put their short-term needs and wants ahead of their long-term health. They may have different motives, but you get the point. In other words, satisfying their sugar or calorie craving is more important than avoiding obesity or heart disease.

Impulsivity is all about trade-offs. Are you sacrificing short-term gratification for long-term contentment? Or the other way around?

At the beginning of this blog, I briefly told you about a trip I took to Europe. It was a freaking blast. When deciding whether it was a good idea to buy a $280 flight to London on a whim, I considered if future Noah would be better off having taken the trip. It was clear to me that he would be. I was 20 years old, well-funded by jobs I worked, and had nothing to lose. Today, I stand by past Noah's decision. Travel is always an excellent investment in yourself.

To make good impulse decisions, you must think long-term. It's all about considering the potential implications of a decision -- like economists do. Will it add to your health, wealth, and or long-term contentment? Or will it subtract from it? When I was trading stocks, I wasn't thinking long-term. I wanted to make money fast, and it bit me in the ass. Granted, I did have winners and quit trading about even, but my ambition to make money in the markets was disguised as greed.

Thinking long-term -- like an economist -- helped me realize that I actually wanted financial freedom and ownership of my time. Now I'm on a better track; I'm writing every day, scaling my newsletter, working as a copywriter, dollar-cost averaging instead of day trading, and actively looking for opportunities to expand my earnings and take more ownership of my time.

Thinking like an economist can improve your mindset and equip you with the tools and mental models needed to make decisions that add value to your life. But you must be willing to ask questions, think long-term, prospectively explore outcomes, and tell the truth.

Keep crushing.

Cheers,

Noah Cracknell

P.S. if you enjoyed this newsletter or want to say hi, reply directly to this email. I'd love to hear from you!

Keep reading