While psychology seeks to explain our behaviors while economics focuses on decision making. The economic underpinning of Spiritual Investment helps answer questions such as should I spend or save, and if I spend how to determine a price with a goal of happiness over the more traditional ‘economic utility’ . Within economics, finance is the art of valuation. In addition to valuing investments such as stocks, bonds, and real estate, we can value our wealth.
Holistically, our wealth is built up by a broad assortment of investments. Current assets, like bank accounts, home, jewelry, and anything else that we can sell count. So, do future assets – like our retirement accounts, inheritance, and even pay checks. Likewise, current debts count against our wealth – including car, student, and home loans and credit card payables – as well as future cash outflows – such as the next mortgage payment or college for your kid in 30 years.
Hence, our wealth is the net present value of all current and probable future assets, debts, and cash flows. Using methodologies from finance, one assigns probabilities to future cash flows and discounts them back to the current day to account for the time value of money. After all, money – or what it can buy – is part of many of the decisions made over our lives. All people follow this exercise but often using mental shortcuts and a range of simplifying assumptions. Behavioral economist continues identifying cognitive and emotional biases that impair our ability to properly value investments and make sound economic decisions.
A lot of the problems in decision making stem from estimating inherently uncertain probabilities of future events. A college degree is an investment that one hopes will result in higher incomes – but how much of an increase and when? Often, we will take a known loss to avoid an uncertain gain. Introspection can help us unlock your examples, but I personally question when working a 90 hour a week job is the most rewarding choice. To gain an appreciation for this uncertainty we can look at neuroscience findings.