Tapestries-18 | Tell me what you own

What "revealed preferences" tell me about the real me.

I recently encountered a concept called “revealed preferences” in my work and in my reading. It posits that we can learn more about something or somebody from what they do, instead of what they say or think. It’s not a revolutionary idea, but can be profound when applied in different contexts, and that’s what this piece is about.

I encountered the concept in the investment world, and recently have applied it in a more personal context. In doing so, I’ve tried to reconcile the difference between who I am and who I think I am. Combining the unique conditions of the pandemic with the concept of revealed preferences has given me a useful moment of introspection and reflection, and here - with the help of an investing analogy - I’ll try explain how.

What are “revealed preferences”?

“Don’t tell me what you think, tell me what you have in your portfolio.” - Nassim Taleb

The personal tragedies of the pandemic have been accompanied by wild gyrations in financial markets and carnage in the real economy. While financial markets have somewhat stabilized (not to be confused with the economic plight of real people), my last few months in the investment world have been punctuated by reports from banks, advisors, economists and other forecasters containing their views on where markets are headed and what the optimum positioning is under current conditions.

While these views provide helpful context, I don’t pay a great deal of attention to them nor rely upon them for my own investment decisions, because to paraphrase Nassim Taleb in Skin in the Game, there’s no meaningful consequence to these people being wrong (something I’ve written about here).

As an investor, understanding what other investors “own” in their portfolios is significantly more interesting than the views of forecasters or advisors. Actual portfolio positioning is a much more useful datapoint because there is symmetry here; if they’re right, these portfolio managers share in the upside, and if they’re wrong they own the downside. Compare this to forecasters or advisors: if they’re right, they’re geniuses; if they’re wrong, they simply issue another report from the same platform. There is an asymmetry in the outcome for this second group.

The application of this concept to how we spend our time

Investment portfolios can contain a mix of equities, real estate and income generating assets (to name a few), with the ultimate goal of generating an attractive financial return. In our lives, we maintain a portfolio broadly comprised of our values, relationships, health, careers and social interactions, with the ultimate goal of being fulfilled, content or at peace. We invest our scarce resources, namely time, in pursuit of these personal aspirations.

In the preceding example, the objects of consideration are beliefs about the economy, with forecasts and portfolio holdings being the two different versions of that object. In this example, when considering who we are, there are three versions: the first is the one we think we are (lives in our heads), the second is the one we project (online and in real life), and the third is the actual version of who we are, moment-to-moment, day-to-day.

Re-purposing the quote above for this more personal context, I could therefore say don’t tell me what you think, tell me what you do. And here, I turn the question on myself.

The different versions of ‘you’ or ‘me’

Like the economy and investing example, there are asymmetries here too. The real version of ourselves may be unmotivated, anxious or unhappy, but project a very different version. Similarly, we may believe that we prioritize certain values like time with family, the environment, or a healthy work balance, but in reality live a life where those prioritizes do not manifest and are glaringly absent.

We all live with these contradictions and in some ways are aware of the different versions of ourselves. But simply being aware of them - and not exploring the differences between them - is a huge missed opportunity.

Within the current disorientation and uncertainty, I feel I’ve been presented the chance to be deliberate about what my life actually is and can be, in all respects. And being intentional about the life I want to lead has forced me to critically look at the three versions of myself - in my head, online and the real.

I need to understand my real life - the one I actually live, not the one I think I live - to effectively design my future one. And this is where applying the concept of “revealed preferences” has been valuable.

If you look closely, you won’t always like what you find

Honest assessments are hard. I may think and say that “I’ll look back on these as the best years of my life” but then not take advantage of the freedoms and opportunities my current situation affords me. I may think and say as a Jew that “Never Again” is part of who I am but then uncomfortably scroll past images of Uyghur Muslims in Chinese concentration camps. I may think of myself as an athletic and active person but then pat myself on the back after a week that included 2 x 25 minute “sessions” in my apartment. When addressed critically, acknowledging my discrepancies causes discomfort; it’s realizing an internal inauthenticity.

Finding alignment has the opposite effect. I think I am family-oriented and despite being in a different country, feel that I am a real contributor to my family units. When I map this image in my head onto my real self and how I actually act, the two versions are aligned, and this brings me some peace. Discomfort and peace, at least for me, are two reliable signals for understanding fidelity to my personal truths.

The examples above are not determinative of who I really am. Prioritizing work and career doesn’t make me a stiff, nor does inadequately responding to human rights abuses make me heartless. What they both make me is human and fallible. We make trade-offs every day on the basis of scarce resources. Progress is not berating ourselves or others on the basis of these choices; it is thoughtfully viewing them, understanding where they come from, and determining how to move them forward.

Looking at the gaps between the real and perceived version of ourselves can and should initially be free of judgment. The critical step is what to do next now armed with this awareness. Do I shift my actions to match the aspirational version of myself, or do I accept that those things I thought were strongly held may only be so in theory and are unlikely to ever manifest in my real world? I don’t know the answers yet, but I know it’s a powerful question to ask.

Ultimately, success (however you define it for yourself) will be a function of clearly identifying what is actually important to you, and then relentlessly focusing on those things to the exclusion of everything else. Focus requires clarity, and the different versions of ourselves cloud the picture and diffuse efforts.

Bringing it together

We all like to believe that we are living out the visions of who we want to be. But in reality, there is undoubtedly a difference between our real and perceived-selves. I believe the peace and fulfillment we all seek in different ways begin with an honest assessment of who we actually are.

Like the revealed preferences in a portfolio of investments, what we actually do in our individual moments is the best gauge of who we are. The “purpose” we all so longingly seek should really be a simple concept; it is just a guide for how we spend our time.

As I confront my revealed preferences, I don’t like everything I discover, as I’ve invested significant time and effort in building up those different versions of myself. But hopefully I’ll be armed with the necessary insight to make the deliberate decisions I’ve told myself are important.

A piece describing what I think about the importance of doing instead of thinking. Like I said, contradictions. At the least, I hope it was useful.

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Photo by Carlos de Toro @carlosdetoro