Good decision-making usually boils down to investing resources — time and money — in the right way. Doing this requires estimating the value of different decisions, but this can be really hard to do accurately.

Here’s a model that I’ve found helpful.

You can think of your life as a series of events (moments in time), each having some value. Good events have a positive value, and bad events have a negative value. Through this lens, your task is to maximise the total value of all the events in your life.

Different events contribute value in different ways:

• Some provide a one-off burst of high value. Example: having a really good meal is nice while it lasts, but once it’s gone, it’s gone.

• Some provide lower value, but which recurs over time. Example: wearing comfortable shoes is only subtly nice, but this niceness is felt for many hours a day, every day, over the lifetime of the shoe. So there are two components that determine an event’s value contribution to your life:

• “Magnitude” — the value of the event at a particular point in time

• “Measure” —  the time period over which the event acts on your life I think we have a bias towards thinking about magnitude, but when making decisions, what really matters is measure. This can sometimes feel counterintuitive.

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. Albert Einstein, allegedly

Compounding returns work in the opposite way to diminishing returns. With certain things, the more resources we spend (time, in particular), the more we get out. The model comes from finance — earning returns on your investment, and also earning returns on the returns — but applies in other places too.

Crucially, compounding returns only occur over the long term, so while high-measure investments don’t guarantee compound returns, compound returns can only come from high-measure investments.

Charlie Munger is a strong advocate for compounding returns when it comes to learning:

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you. 

Jeff Bezos alludes to it, and to “measure”, with his focus on what doesn’t change:

It’s impossible to imagine a future 10 years from now where a customer comes up and says, “Jeff I love Amazon; I just wish the prices were a little higher,” [or] “I love Amazon; I just wish you’d deliver a little more slowly.” Impossible. And so the effort we put into those things… will still be paying dividends for our customers 10 years from now. 

The Hedonic Treadmill is the observation that external factors generally have no long-term impact on our baseline level of “happiness”. If you subscribe to it, it’s a great model for combating the “grass-is-greener” mentality that can creep up on us.

It does, however, call into question whether we should even bother investing in improving our lives. If we won’t end up any happier, what’s the point?

This is probably true in many domains. But I’m not sure whether high-measure physical items are one of them. I really like my bin.