The trade-off between short term and long term benefits

A common bias that many people struggle under is the bias that places a lot more value on the near rather than the far future. This leads to many problems for individuals and for society. In individuals, it may appear as a smoking addiction or obesity. For societies, it takes the form of corporations that destroy eco-systems or worker morale to improve their bottom line.

If short-term benefits were aligned with long-term benefits this problem would not exist. That happens only on very rare occasions. In most cases what is pleasurable in the short term leads to a lot of pain on a longer time frame.

Humans have evolved to place the most emphasis on the short term. For practically the entire span of human existence hunger has been a constant companion. And even more short-term is the threat of violent death. It makes no sense to worry about two weeks from now when you can die tomorrow. Only in the last 200 years have these problems been solved, and only for some of the population. Evolution doesn’t really care what happens to you after you have raised your offspring to maturity: your role is done. Evolution does not care for 60-year-olds and might even have an active interest in their decay: Less old people using up resources frees up food for young people who have a better chance of survival.

A mental bias that also hinders people in thinking clearly about long-term consequences is the intuitive belief that the person one year from now is “not me”. That the future-you is another person and can be more easily harmed. The person feeling the pain is not the same person who experiences receives the short-term reward.

For corporations, the same problem arises: Shareholders do not care what happens to the company after they have sold their shares. They want the maximum payout, who can blame them, the drive for better performance is a very admirable human characteristic. The damage caused lies outside their awareness and are frequently hidden costs that are hard to detect. The damage might be to the natural environment, to company morale or to the country’s economy. Since the future is fundamentally uncertain, the same payout now IS worth more than the same payout 3 years into the future. This difference in value is reflected by the interest that can be earned over that period.

Some problems are internal and only have a negative effect on the company. Equipment breaking because of insufficient maintenance or crippling workforce strikes can wipe out a company permanently. Thus, only companies that can mitigate or eliminate these consequences survive and continue evolving for many years.

Before you go on a crusade against short-term results as the root of all evil, read on. In many circumstances, short-term maximization is the most effective long-term strategy. If you sacrifice long-term benefits you could gain a short-term advantage. If you then find a way to neutralize the problems before they cripple your company, you will outcompete other companies that bet on the long-term and fell victim to changing circumstances.

The best overall results are obtained by a mixture: Some companies optimize for the short term, some optimize for the medium term and some are in for the long haul. That way, whatever happens, some companies survive and prosper and others don’t. Exactly like evolution, maximum sustainable diversity is the superior strategy.

Evolution is a blind process. If you add a layer of information processing (aka intelligence) on top of the evolutionary framework, you can beat the average by a wide margin. Of course, this leads to another optimization problem. Intelligence, like many processes, runs into diminishing returns. At some point, the cost of increased intelligence exceeds the benefits reaped. Going meta – the level of intelligence also evolves and can be modified on cue from self-aware information processing. Thus, companies can think about and decide to become more or less intelligent through their workers.

Life really is profoundly fascinating. The fractal nature and the mutability of patterns continue to amaze me!

To happiness, and beyond!


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