“Invest your time wisely.”
Most of us have heard a parent say this to us in the past, but are we investing our time or are we gambling it? What is the difference between an investor on Wall Street and a high stakes poker player in Las Vegas? Both have the same main components: consideration, chance and a prize. The consideration is the stake in betting and the capital put down in investments. The chance is the probability of outcome/risk i.e. the higher the probability of return, the lower the risk. And the prize is obviously the return on investment or the won pot.
Time being a good that cannot be reused and our inability to know the effects our actions will have, causes me to believe that we are gambling our time, not investing it.
Gambling and investment diverge at the chance component. Investors generally have more information at their disposal to determine the probability of return. They also have more time to analyze the information to find considerations of lower risk. While in gambling there are still ways to gain information, such as learning the tells of your opponents, there is a tighter constraint on the information they have at hand. Investors also have ways to minimize loss capital; they can put in a stop-loss order, which is when a broker sells a security when it reaches a certain price. So for example, if you bought a stock at $10 a share and put a stop-loss order in for $8, the most you can lose is $2 per share.
Now let’s apply these components to your time. The consideration is simply choosing how much time you put into something, but unlike money, it needs to be used (you can get away with never gambling or investing money in your life). The reward gets a little more complicated – you cannot really quantify the positive effects one receives from spending their time well, but they can definitely be felt. The economic term for this is “utility.” The chance component is the probability you will receive utility from what you are putting your time towards.
So, are we gambling or investing? Unfortunately, we aren’t minimizing our losses; when our time is spent, well, it’s spent. Neither can we research how much utility an event will give us, because like I said, it’s not really quantifiable. But, let’s talk a bit more about utility. Utility, which is based upon your preferences, is usually applied to consumer goods in microeconomics, but is also applied in other ways for game theory and behavioral economics. In the sense I am using it, it is based upon the preferences you have for who you want to be (a bit heavy, I know).
Exact utilities aren’t able to be determined but the probability that something will give you utility can be deduced. Do you want to be healthy? Well, actions such as eating a balanced diet and exercising have a higher probability of giving you utility than eating fast food for everyday. But, when it comes to the larger scale of life, it becomes much more difficult to figure out which decisions will give you utility and which will not. Choosing a major is an example we can all relate to – who actually knows what major will be the best for them as a senior in high school? Many of us change, finding other majors to be more fulfilling for various reasons (expected salaries, good program or simply enjoying the classes). The constraint on information on the utility probability given through how you spent your time is tight.
When choosing how to spend your time, you can’t minimize your losses, so I am sorry to inform you, but you’re a gambler. Live your life like one.
The safe high probability bets will sustain you: eating healthy, exercising and getting an education. But, the risky lower probability bets will win you the large pots: starting a business or getting into a relationship. No one really knows what will give them their ideal life, they can just try to make the best bets to reach it.