Chapter 11

WHEN MONEY DOESN’T MATTER

One of the challenges that I got from friends and colleagues as I was starting to write this book was that, to many, Present Value seemed like a very limited concept that can only be utilized when the decision being faced is a financial one. The question they posed was, if you can’t translate the value of the thing you are considering to a dollar amount, how will you ever be able to use Present Value mathematics to conclude anything useful? I believe that many of the examples that I’ve discussed in the last few chapters show that nonmonetary values can be looked at through the lens of Present Value, but in most of those examples money was still the most important component of the choice. But what if money is not the main consideration? In fact, what about situations where money doesn’t matter at all? In this chapter we will look at a few of those cases.

A Matter of Life and Death

“I’d rather be eaten by the Bear than hide in my cave waiting to starve.”

Rob Frohlich – on whether to undergo a dangerous experimental cancer surgery

When my childhood friend Rob and I were about five years old, my father took us to a local farmers’ market. We filled the car with a cornucopia of fruit, and sitting between us in the back seat was a basket full of ripe Fuji apples. Both of us were hungry, and both of us looked longingly at those apples. It never occurred to me to do anything other than wait, but Rob reached over and began tasting the fruit. Not satisfied with tasting just one, he systematically took a bite out of each and every apple in the basket. He wanted to know what all of them were like. Needless to say, there was hell to pay when we got home, but almost right up until the day he died, fifty years later, Rob lived his life just like that, voraciously sampling all that life has to offer with not a single thought to the future consequences of his actions.

Even though he moved to Canada when he was in his early teens, Rob and I stayed close through high school but then lost touch for almost fifteen years. I had no idea where he was and had pretty much given up ever reconnecting until I heard a rumor that he was tending bar in a little town called Truckee, somewhere in California. Soon after that, my wife and I were in Lake Tahoe on vacation, and I realized that Truckee was just on the other side of the Lake. I convinced my wife to help me look for him, and so we headed down the town’s main street intending to stop at each bar and restaurant until we found him. At the first place we visited there was no Rob, but I was quickly directed to another watering hole not too far down the road. We walked in, and there he was. He looked up and with only a second’s pause said, “Hey Pete,” clearly happy to see me, but not the least bit taken aback or shocked at my unexpected appearance—just simply open and interested in whatever adventure happened to be coming next. We spent the next three hours catching up on our lives.

Being an actuary does not generally lead to many adventures or exciting stories, so I spent at least two and a half of those hours listening to his. It turns out that Rob had packed a lifetime of excitement, danger, and drama into those fifteen years. From run-ins with real pirates in the Canary Islands, to sailing across the Atlantic in a small boat with a guy who went crazy and tried to throw him overboard, from harrowing cliff climbing in Yosemite to getting lost in the jungles of Nicaragua, it was clear that Rob was using an entirely different set of criteria than mine to make life decisions.

By the time I found him, Rob had slowed down considerably and was making his living as a freelance ski journalist in and around the Sierra ski resorts. Even in this “calmer” profession, Rob was still taking risks of a different order of magnitude than I would ever consider. Among his projects was a piece that had him going out for a week of night maneuvers in the wilderness with the US Marine Mountain Corps and writing various profiles of “extreme” skiers, which required him to accompany these athletes to venues that could only be reached by helicopter or worse.

When I asked Rob about whether he thought about the danger and the choices he was making—including their Present Value implications—he shrugged and said that he simply followed the path that seems most interesting and didn’t really think too much about the consequences. He said he sometimes wished he had made more rational decisions that could have led him to have a family and more financial security, but on balance he felt lucky to have had as many experiences and memories as he had. In the calculus of value, it was clear that Rob knew his mind and was making trade-offs that made sense for him. What he never did, and never felt he had to do, was to consider the future and incorporate Present Value into his decision-making.

And then, suddenly, everything changed.

It was 2008 and Rob was training for a trip to Antarctica where he was going to accompany some explorers and extreme skiers on their quest to find and ski some peaks that had never been skied before. But the training was harder than it should have been, and it became clear to Rob that something was wrong with his body. When he finally went to the doctor, he was given the devastating news that he had cancer of the appendix—a rare and extremely lethal form of the disease. He was told that his cancer was so deadly that patients like him typically survive less than six months, and his chance of living more than two years was essentially zero. Even grimmer was the fact that in order to have a chance of surviving that long, Rob would need to undergo not just aggressive chemotherapy, but multiple major surgeries.

For the first time in his life, Rob was faced with choices that required him to think in terms of Present Value. He knew what the next six months would entail, what the quality of his life would be like if he chose not to treat his cancer, and he knew exactly how much pain and suffering he would have to endure if he chose to fight the disease. What he didn’t know was how long the treatment would keep him alive and what he was going to do with the extra time that he might be able to obtain—Rob’s planning horizon was usually measured in weeks, and the idea of thinking that far in advance was truly a foreign concept—and whether in the next two years additional treatments might come along that could extend his life even further (in some ways, the most valuable aspect of the extra time). For almost fifty years, Rob had avoided doing so, but now he was going to have to consider the future, albeit a shorter one than most of us think we have.

Like every other challenge he had faced before, Rob threw himself into this one with clear eyes and courage. Very quickly he came to the conclusion that for him, life itself and the ability to engage with it was worth almost any price. After being assured that in between surgeries and chemo treatments, he would be relatively pain-free and mobile (at least until the treatments failed to be effective) he started to think concretely about what he wanted to accomplish in the time he might be able to purchase (steps 2 and 3). And it was a surprisingly long list. In addition to various projects that he was in the middle of, he decided he wanted to cover a major ski event in France and actually get to Antarctica. Interestingly, as he thought about how important those future experiences were compared to current costs (step 4), it was apparent that his personal rate of discount was essentially zero, an ironic result for someone who had lived his entire life in the present moment. So valuing those future experiences far more than the near-term pain, and hoping that buying extra time would allow technology to catch up with his disease (step 5), he jumped in to battle his cancer with every weapon he and his doctors could marshal.

One other—somewhat less surprising but equally idiosyncratic—aspect to the way Rob faced his dilemma was how little he considered the financial aspects of the decision. Having no wife or children who might eventually have to bear the financial burden of his illness, Rob had the luxury of ignoring the financial cost of his treatment without any legal ramifications. For him, it was a “no brainer.” If the hospital or doctor was willing to perform the service, he accepted it. At one point I remember visiting him in his apartment and seeing a stack of over $100,000 worth of unpaid medical bills. Seeing the look on my face, he smiled and observed how crazy he thought it was that some people considered that stack more important than the value of the precious time that the treatments had provided him.

The final bittersweet irony of this last aspect is that Rob actually lived for two and a half years after his diagnosis, and once he passed the two-year mark (which his doctors had never seen before), he became a medical curiosity and the cost of all his medical treatments became free as the medical establishment decided that (on a Present Value basis) it was worth investing their resources in Rob so that they might be able to extend the lives of others with the same diagnosis.

It was a fitting final chapter to a life well lived by a remarkable individual who epitomized what it means to make the right choices by staying completely aware of his own desires and values.

Medical Tests and Lifestyle Choices

Rob’s story is extreme, and his choices were particularly stark and short term, but millions of us have faced and will face serious decisions about our health and medical procedures that most of us are ill equipped to grapple with. Many of these choices have implications that extend far into the future, and so Present Value thinking can be an extremely useful tool in making them. Unhappily, most doctors don’t think that way, and consequently the information and alternatives we are provided can sometimes prevent us from thinking about our choices in the most productive way.

For example, when my wife was pregnant, the doctors suggested, (as they do with any woman over age thirty-five), that she might want to undergo a somewhat risky and invasive test to check for various birth abnormalities.⁵¹ Their rationale was that “at her age, the probability of the test causing a miscarriage is less than the probability of your child having Down’s Syndrome.”⁵² To me, this completely missed the point. Certainly the likelihood of each of these devastating events is relevant, but conflating them into a “simple” comparison like this seriously distorts the nature of the decision.

First, and most obvious, the choice is not between a miscarriage and a Down’s syndrome baby. The choice was between risking a miscarriage and not knowing whether or not our child was going to be normal. It’s the value of that knowing (the probability of which was 100% if the test was taken) that needed to be compared to the risk of the procedure. Secondly, the two results themselves were not even comparable in “value.” A miscarriage would happen immediately and would cause us one kind of pain and suffering while having a Down’s Syndrome child would have an entirely different kind of “cost” that would extend over many years in the future. Maybe the assumption on the doctor’s part was that faced with the prospect of a disabled child we would choose to terminate the pregnancy, but that to me seems extremely presumptuous on his part and even while those two events—a miscarriage and an abortion—would occur at approximately the same time, they are fundamentally different in nature. A pregnancy termination would abort a fetus known to be abnormal, while a miscarriage would end a pregnancy that had over a 95% probability of producing a normal baby. To me this is not just a practical difference but a moral one as well.

It should be obvious by now that the right way to think about the pregnancy test above is by using Present Value. At the end of the day, that is what my wife and I did. Hard as it was, we clarified our choice (take the test or not), imagined the possibilities, frightening as they were, and correctly used the probabilities we were given to weigh the present values of the consequences of each choice. We then nervously (and with full awareness of our choice) decided to take the test and to our delight had no problems with the test and found out that our son was going to be perfectly normal. When I think of the thousands of others facing this or similar questions without the tool of Present Value at their disposal, it makes me very sad and even more committed to spread the word about how poorly informed we often are about some of the literally life-and-death choices that we face.

Unfortunately, I believe that this sort of muddy thinking and misapplication of probability and statistics is not limited to acute treatment options. With the advancement of technology and medical research, more and more of our ongoing health maintenance decisions (e.g., diet and lifestyle) have become confusing with an army of experts proffering advice and statistics to get us to change our habits to extend or improve our life, but no guide to provide us a systematic way to sort through the information to make the right choices. I hope it is clear by now that Present Value thinking and the five steps entailed in the process can be extremely helpful in that regard.

Space does not allow me to go through the details of how a Present Value analysis can be useful in deciding on whether to go “gluten free,” start an exercise regime, or stop (or start) drinking wine, but by now the recipe should be familiar. My advice is the same as that I have provided throughout. In particular, be very attentive to steps 3 and 4. The fact that there are statistics that bear on the efficacy of the regimen (diet, herbal, etc.) you are considering does not mean that the probabilities presented are “true” and, more important, that they are the right ones for you to factor in to the decision, particularly when the costs are immediate and the benefits are far in the future.

Whatever the choice is, as long as there are costs and benefits involved with some of those costs/benefits emerging both now and at different points in the future, you can use Present Value to help you make your decision. You don’t have to translate the value of what you are considering into dollars. You don’t even have to put any kind of specific number on it at all. All you have to do is weigh those costs and benefits by your own internal scale, determine their relative values, and then layer on your own personal rate of discount to complete the picture.