Fallible wrote:From what I read here, a connection I see to investing might be in setting an asset allocation, i.e., the similarity between designing a life and designing an allocation. In both cases it's about finding oneself and what is right for oneself. An asset allocation, to become a course that one can stay through market crashes, includes knowing personal goals, financial capacity, and one's emotional tolerance for risk, for losing lots of money. Could the "design" course ever be directly applied to AA?
In Dave Evans's terminology, Asset Allocation is a business problem. Early in the video, he distinguishes different types of problems:
- in engineering problems all the data are stable, one has to select correct formulas, but once an engineering project is complete it remains stable
- in business problems data are uncertain, and practitioners deal with probabilities and what-if scenarios
- in research problems a scientist comes up with a hypothesis and tests it according to the applicable scientific method
- in design problems a designer is doing
, finding problems, re-doing
, fixing new problems, and so on.
The future market performance is unknown, but we can try to guess which past patterns are likely to repeat themselves. We decide on Asset Allocation based on our confidence in our predictions, on our aversion to risk, and on the size of our portfolio which may enable us to take less risk. Thus, it's a business problem.
Life design, as a design problem, requires experimenting with one's own life. The connection to the personal finance is in the amount and type of financial resources our alternative life paths may require. Examples:
- if you want to become an entrepreneur, you need greater assets to withstand the fluctuations in your business viability
- if you want to have many children, the expenses are relatively predictable but are higher than for someone with few or no children
- if you want to become an artist, prepare to become a starving artist and take anything more than that as a gift.
In the list above, I have emphasized the financial aspects of the life design. The program Design Your Life includes finances as one criterion; there are several others. You start by thinking what you would like to do and then you get a reality check. Importantly, the reality check is not purely theoretical, i.e., you don't just say "I have enough money to be a starving artist." You also prototype being a starving artist: you try to live a prototype of your desired life and you talk to people who already live this life.
I hope my explanations help, but I strongly recommend to watch the 1-hour video I linked in the OP.