Tuesday, April 17, 2012

The Time Value of Experience

I owe credit to New Zealand entrepreneur Michael Moore-Jones for creating and introducing me to the concept of the time value of experience. It's a riff off the economic concept of the time value of money, which asserts that a dollar that I receive today is more valuable than a dollar that I receive at some day in the future. This is true because I could put the dollar to work in the meantime - at the very least I can earn interest on it! That's why people have to pay for the privilege of borrowing your dollars even if they promise to give back the same amount of dollars in the future. Future dollars are less valuable than present dollars.

The time value of experience says that wisdom gained today is more valuable than wisdom gained at some point in the future. I can use that wisdom in the meantime to make better decisions; in a sense it pays me interest. This suggests a heuristic method for making life decisions that is very risk-seeking - gain as many experiences as you can right now. Start that business, write that book, join that cause. Don't wait until it's safer or your life circumstances are better. If you hesitate, you'll miss out on the compounding wisdom that you could have been earning in the meantime.

Read the whole thing.

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