Useless Optimization

By Max Li | Published: July 27, 2016

One of my favourite hobbies is optimizing the minuscule, insignificant parts of my life.

For example, this could be done by reading through all the labels on all the brands/flavours of ice cream at the grocery store, and deciding which one has the best value for my dollar. But another more interesting example is that I recently found myself doing this with credit card rewards. I have a Chase Freedom card which gives me 5% in selected categories, but only 1% on everything else. One of these 5% categories is wholesale clubs (e.g. Costco), but the gas you buy at Costco doesn’t count for the 5% (so it would only give me 1% back on gas). I found a loophole however: I could buy Costco gift cards, which would count for the 5%, and then I could use those to buy gas and get the full 5%. Problem solved (though you end up having to prepay for the gas).

Does this micro-optimization make sense from a rational point of view? Not at all. I don’t drive that much, so a generous estimate is that I spend maybe $500 on gas a year. So with all the effort of buying/safeguarding gift cards, I earned a measly $16. Given that doing this process takes quite a bit of time, I might not even earn minimum wage by jumping through all these hoops. If I were truly trying to optimize my finances, I could instead try to negotiate a lower price on the car/house I buy (doesn’t seem like it’d be hard to knock off an extra $20 on the price of those), or do my own taxes, and save quite a bit more money. It would be much more efficient to focus on the larger things in my life, and optimize even tiny percentages of those. But we humans have a focus on relative percentages, so it seems like saving 5% on $100 is better than 1% on $1000. So clearly what I do would make no sense to a emotionless, logical being.

But maybe there’s a good reason emotionally to optimize the smaller parts of our lives. If we could end up happier, who cares if we’re only up $16; you can’t put a price on happiness. Psychologists call people who optimize for the best decision “maximizers”, and those who take a strategy of searching for an option that’s “good enough” to be “satisficers”. When the decision making space is large (i.e. there’s a lot of choices), it turns out that maximizers tend to be less satisfied with their decisions and tend to experience more regret. An intuitive explanation of this result is that it’s unlikely you’ll pick the absolute best option amongst many, and you’ll keep wondering if you picked the right option (you probably didn’t). Thus you’re less happy. But this is all under the premise that you don’t enjoy the act of optimizing itself. It could be possible that if you enjoy trying to make these difficult decisions, your overall happiness would be higher even if you mess up and pick the wrong choice. But this thought might just be me trying to rationalize my irrational behaviour. The truly optimal way to optimize your happiness seems to be to not optimize the decisions that lead to your happiness - quite a paradoxical result.