Live Now, Buy Later
Throughout the course of your day, you will make many decisions - when to wake up, what to wear, how to get to work. Yet many of these decisions are not fully conscious. Nonetheless, the payoff from these decisions is very real. For instance, you unconsciously decide to pull your hand off a very hot surface, and this is one of the fastest feedback loops that the human brain can respond to. It is an unconscious decision, but there is a snap judgment that the payoff of that decision is very low.
Here's another example that might be clearer. Suppose you are interested in purchasing a house. For simplicity, let's say there are only two houses on the market available to you: House A and House B.
- House A costs $100,000, covers an area of 100 sq metres, and is 1 km away from the city.
- House B costs $300,000, covers an area of 300 sq metres, and is 3 km away from the city.
Making the decision of which house to buy is not simple. There is a lot of information missing - What does the house look like? What's the neighborhood like? Will there be neighbors?
At a blind guess like this, you wouldn't really have great insight into which house is better for you to live in.
Now, say that you see both houses and realize that you like house B for the space it provides you. There are rational reasons to choose a house with more space. Maybe you have a large family, or you inherited 300 sq meters of carpet from your grandmother. In some other cases, where all else is equal, you choose the house with more size. You may have been conscious in your consideration of the house size, but there were probably many unconscious reasons for choosing the house because of size.
Now, you get a mortgage, purchase the house, pay the taxes due, move in your carpets, etc. After moving in, you settle into the house and realize there is a long commute along a busy road when you drive to work. You are past the point of it making sense to sell the house and buy a house closer to the city.
For some decisions, their consequences are widely distributed. With time, we get a better understanding of the consequences of our decisions. But we never can fully know. You might buy a piece of land, and for 100 years, it is essentially worthless. Then one day, you wake up, and a man from an oil company is knocking on your door asking to buy your land. In the context of a house, you get the full experience through living there over time. You know the neighbor is playing drums on the weekend, and the neighbors are always arguing.
The absence of feedback can lead to more unconscious decisions. When you don't get feedback for a purchasing decision until later, you are more likely to make poor decisions. When you're buying a house, you might be better off with a cheaper house closer to the city than purchasing a house with a lot of space but with a lengthy commute. If the decision is reversible, the impacts of these poor decisions are softened. The easier it is to make such decisions, the better it is for your whole decision-making process.
You did not get any feedback immediately in making the decision to purchase the house. Would you have been better off purchasing the cheaper, smaller but more proximate house? Again, you don't know. In any case, you're stuck. After making a decision, the ability to reverse becomes more difficult.
But there is something we can do to limit our exposure to poor decisions. We can increase the rate of received feedback. It's important here to increase the feedback rate not only for some but also for many consequences of our decisions. This short exposure may be more painful at first. In fact, we take much more risk more often. However, the risks should be limited in duration and, importantly, reversible.
Applications to the housing market
The proposal here is for a purchasing system where you can live and rent the house for a limited period of time before being allowed to purchase it. You can move in, experience the house, and get a real sense of what it means to make such decisions.
This system could be summarized as a "live now, buy later" system.
The buyer gains a much better understanding of the house, receiving real feedback from the experience of living there. They can learn the nuances of the house, like the ceiling being too low or the neighbor's cigar smoke drifting in through the windows at night. After living in the house for a month, they may still have some unconscious biases, but they will be much better informed.
The seller of the house may not gain much explicitly from this system, but they do implicitly. The "buy later, live now" system is universal, so when sellers want to sell a house, they must ensure that the house is livable. There are fewer opportunities for obfuscation, as they can't dress up the house to appear nicer than it really is. They must pay more careful attention to the house, address any issues that annoyed them or others while living there, and fix the crooked doors or ask the neighbor to stop smoking.
This effect applies to the seller as well. When someone sells their house, they receive money, and when they go on to buy a new house, the "live now, buy later" effect applies to them. A system that requires living in the house before buying it benefits the buyer, but it also encourages people to treat houses as homes. The seller is encouraged to buy another home with the money. Otherwise, they don't gain from a system that focuses on feedback from the buyer. To truly know a house is to live in it, and you can't live in a portfolio of investments.