Health and the Behavior Gap

Carl Richards coined the term Behavior Gap to describe the difference in investment and investor returns caused by irrational investor behaviors.

Here's Carl's classic sketch:

In one simple drawing, Carl captures the full gist of behavioral finance better than any utility function ever will.

People behave in ways that diminish performance. We get in our own way. There are many reasons why that are beyond the scope of this post.

The Behavior Gap can be generalized across other modes of experience aside from investments and personal finance.

Let's take personal health.

People are born with longevity and personal wellness potentials. These potentials depend, in part, on how well we optimize behaviors for lifespan and health.

Eat garbage and remain sedentary habitually and, odds are, we’ll live shorter, less healthy lives.

But it’s not so simple. Behavior Gaps exist in the first place because we’re human and we are often compelled to act contrary to our own best interests.

Behavioral economists might call this bounded rationality, while clinical psychologists might call it neurosis.

Whatever.

In either case, wealth building or health building, the better we behave, the better the returns.

Awareness raising here doesn’t make it much easier. Sorry. 

But it does help define the stakes.