Why people use debt (was Energy and PCT)

[Martin Taylor 2010.]

(Note: the date stamp is when this was written, but a sequence of the proverbial "technical difficulties" prevented its posting until now.)

[From Bill Powers (2010.02.24.0530 MST)]

Martin Taylor 2010. --

BP earlier: Is there something about all human beings that makes low-interest loans irresistible? Since PCT is supposedly about all normal human beings, it should be able to explain this susceptibility to cheap credit -- do you have any suggestions?

MT: Would you prefer to borrow to buy a house in your 20s when you are starting a family, or trust yourself to have the discipline to set aside a large sum in addition to the rent, so that you will have the cash to buy a house in your 50s or 60s, when the kids have flown the nest?

Maybe an extreme example, but I think there are analogous conflicts in other situations. Some people might resolve the conflict by deferring house ownership, following Polonius's precept, but most would take out a mortgage (incidentally, thereby creating more circulating money that others can use for their own benefit, but that's a side-effect). Some, of course, set their reference value at zero for their perception of owning a house. They have no conflict and don't borrow for that purpose.

You're in your Contrarian mode again. I was pointing out, obliquely, that there is nothing about the availability of cheap credit that forces people to use it. I simply have to learn that making points obliquely does not work. Another backfire.

Not contrarian at all. I think I understood your point, however obliquely you think you made it. You asked for a PCT analysis of why people take out loans, which people actually do, though they are not forced to. So I offered an example that illustrated the frame of the PCT argument.

Maybe I made my own point too obliquely. I was pointing out that you are talking about a conflict that PCT must necessarily address, between reducing an error in one perception now, rather than refraining from reducing that error in favour of later reducing an error in that or another perception. Children seem able to learn to do this at some age my faulty memory tells me is about 3, at least in experiments in which they can take one candy now or wait 5 minutes alone in the room with the candy in front of them, and get two candies if they didn't eat the one in front of them. It's just as much a conflict as is the conflict between any two systems controlling perceptions that cannot all be error-free simultaneously.

In the house loan example, there is a conflict between the various perceptions that would be brought nearer their references by having the house now, and those that would be brought nearer their references by using the money for other purposes. But in the house case, that conflict is generally pretty one-sided, in that if one does not take a loan and buy the house, one must pay rent, the cost of which may well be not far from the amount of the mortgage payments.

I was also trying to get across the idea that borrowing money means you have to pay it back, a point that many borrowers seem to overlook.

Do they? You could be right, but I think "many" or perhaps "a few" is the correct adjective. I don't think I would agree with you if you had used "most" or your usual favourite, "all". So there are two questions, both relevant to PCT. One is how it is possible for a person seeking a cheap loan to overlook the predicted future requirement to pay back the principal, and that is a question that ties into the whole issue of how prediction influences control, which in the past has proved to be a can of worms I don't intend to reopen now.

The other question concerns the people who do appreciate that the principal will need to be repaid. For those people, the conflict is the same as in the house example. There are controlled perceptions for which the immediate availability of money opens up environmental feedback paths that allow control to be effective, and there are imagined future controlled perceptions for which the likely lack of money due to repayments has some probability of closing off potential environmental feedback paths. Note "imagined", "likely", "probability", and "potential" in that clause. The conflict is between the set of perceptions for which control is improved by taking the loan and the set for which control is reduced by taking the loan.

The latter set, being in the future, is full of uncertainty, and all of the uncertainties leave open the possibility that taking the loan will not reduce the possibilities for their control (by some miracle in some cases, by considered imagination in others). In some cases, the conflict is resolved by taking the loan, in others it is resolved by not taking it. When the current controlled perception of most importance is getting something to eat now, and the future is uncertain, the conflict is likely to be resolved in favour of eating now rather than starving now and having money later.

And cheap credit may not actually be cheap. Right now there is an infestation of "payday loan" companies, which will lend $500 at usurious rates to practically anyone who wants them. The credit seems cheap -- only $15 to get $500 for a week, to last until payday. Compounded, that's an APR of 500%. And when you get your paycheck, after blowing all that money on goodies, you have to pay back the $515, and where are you going to get that?

All of that is true, and those considerations clearly would be weights in determining which side of the conflict wins. Different people have different imaginings as to what the future will bring, and different current levels of error in their controlled perceptions. As you say, "many" may not imagine the need to repay at all, and consider only the currently controlled perceptions that could be effectively controlled by taking the loan. Others may imagine that the loan may not need to be repaid because they will use part of it to skip town.

So, from a PCT analysis, there are many possible reasons for taking a (non)cheap loan, but they all come down to the resolution of a conflict between creating environmental feedback paths for perceptions currently being controlled and closing imagined possible environmental feeback paths for perceptions that might be controlled in future.

There, that was my point, only stated plainly this time.

Thank you. I think I had understood it before, but maybe not. Is my point more plain and less contrarian now?