If you follow sports you’ll notice something. Vegas is better than the experts at predicting outcomes. You could chalk this up to the wisdom of crowds, but this can’t be the only explanation, because in surveys and polls the crowd doesn’t do very well compared to Vegas either.
The reason Vegas is better on average than individual experts or surveyed masses is because people choose better when they have skin in the game. It’s one of the reasons democracy is a bad way to determine the policies people want and grocery stores don’t survey their customers to decide how to stock their shelves. When it’s free, people take different and dumber risks.
Even worse than having no skin in the game is having the opposite. A cushion large enough to not only catch you if you try and fall, but one that can sustain you even if you don’t try at all. Economists call this the moral hazard in the world of financial regulation. When third parties insure against risk, people and institutions make worse decisions. Think high risk home loans underwritten by banks who knew that taxpayers would be forced to bail them out if it went south. It applies on the personal level too. While it’s easy to call inheritors of wealth financially privileged, I think it’s often harder to discover and live a fulfilling life if you’ve got a huge trust fund. If you don’t have to win, it’s hard to get the motivation to try.
All these examples might be too easy to agree with me on. Let’s push a little farther. I think college funds cause the same problem. When parents put tens of thousands into an account that can only be used for college, young people will fall prey to the sunk cost fallacy and favor going to college much more than they would without that restricted money. Once they do, they’ll take it less seriously. As long as parents are satisfied with grades and activities, it doesn’t really matter. The degree is perceived as free. The opportunity cost is overlooked. The diploma at the end is supposed to guarantee a job and an income, and these are supposed to pave the way to find fulfillment. Plus, if you pick a major that is supposed to give you lots of career options, you get lulled into thinking you have infinite fallback plans. Sure, you sat in classrooms or goofed around for the first 22 years of your life, but it’s all good. You’ve got that free degree so no matter what you do, you’re set.
Parents see college as an insurance plan against all problems. They tend not to care much if you’re happy there or finding your groove or learning how the world works, as long as you get a degree. Tell them you’re bored and restless and opting out to go start a business or pursue a career as an artist and risk giving them a coronary. They feel more comfortable with you half-assing it through a moral hazard backed mediocrity.
Forget all that. It’s your life. Whatever you do, have skin in the game. If you don’t or can’t in reality, imagine and live as if you did (a poor substitute, but better than nothing). Find out the actual cost of your education. Tally up how much of what kind of work it would take to pay for it yourself. If it was all on you, would you pay and do it? If not, why are you doing it now? What are you willing to give up to get the things you want? If what you think you’ll gain is less than what you’re willing to part with, why do it?
Are you willing to fail? Are you so passionate about what you’re trying to do that you’ve got to try it out even if it doesn’t work? What if the degree fails to bring you anything you want. Will it have been worth it? If not, why do it? “Well, I’ve only got another two years, so I might as well have it under my belt.” Really? Compared to what?
If you are like most people and you don’t have any single passion or pursuit to throw yourself behind, no worries. Go the opposite route. Try a bunch of stuff and build a list of things you know you don’t love doing and want to avoid. Avoid them. Don’t do them because they’re low-risk or paid for by someone else. That’s like the person who spends money they don’t have on clothes they don’t need because they were on sale. A $100 pair of useless jeans marked down to $50 is not a savings, it’s a waste of $50. Keep eliminating things that don’t bring you value and everything else is fair game.
I’m not saying it’s never a good idea to take something that someone is offering to pay for. The point is to not overvalue the “free” part and undervalue the unseen costs. Not only are there often strings and expectations and the cost of forgone opportunities, often valuable things offered for free aren’t even enjoyable or meaningful to you. Don’t do them just because other people would call you crazy not to. And don’t forget one of the biggest dangers of something someone else is paying for, which is the way it reduces your incentive to take it seriously and get the most out of it.
Look at the actions and activities in your life. Do you have skin in the game? The bigger and more important they are, the more you want to have skin in the game. It’ll make you better and more likely to succeed in every way.
This is not an admonition to simply take more and bigger risks, or to alter your risk tolerance. It’s an admonition to dig down deep and get to know yourself. Discover your real risk tolerance. Be honest about what you find, whether it’s more or less than you wish it was. Make decisions for you, based on your unique assessment of the trade-offs involved. Don’t suffer through things because, relative to everyone else’s opinion, they are low risk or a good deal or a safe backup plan. Get some skin in the game. The games you want to play. On your terms.